Class 




Book - 7^ I> 
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COPYRIGHT DEPOSIT. 



ORGANIZING A FACTORY 



AN ANALYSIS OF THE ELEMENTS IN FACTORY 
ORGANIZATION. A PRESENTATION OF THE FUNDA- 
MENTAL PRINCIPLES OF FACTORY MANAGEMENT, 
AND A DESCRIPTION OF THE METHODS TO BE USED 
IN EVERY DEPARTMENT OF FACTORY OPERATION 



BY 

C. E. WOODS. E. E.. M. E. 



THE SYSTEM COMPANY 

CHICAGO-NEW YORK 

1905 



5(6 

7 ••• 



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Copyright, 1905, by 
The SySem Company 




PUBLISHER'S PREFACE 

American business men hold that the only way to 
learn to do things is to do them. This opinion has 
had much truth and fact to justify it, but it has been 
undergoing a marked transformation in the past dec- 
ade. For men are coming to realize that, although 
no one can learn to do a thing by merely being told 
how it is done, such precious knowledge greatly facili- 
tates his learning how to do it when once he gets into 
practical work. It affords him a strong foundation, 
barren and useless in itself, but a firm basis upon 
which to build the structure of business experience. 
Book learning, abstract knowledge, is like a fertilizer: 
it does not, of itself, produce anything, but it stimu- 
lates growth and advance when the live seed, practical 
experience, is instilled in the soil of work. 

There is another feature in modern commercial 
life which has stimulated the output of business litera- 
ture. Association for the accomplishment of common 
purposes is having an always greater impetus, and it 
has been accompanied by another kind of co-operation 
— the give and take of business ideas and knowledge. 

In other words, business men are realizing that 
no one man can know all ; that every man can make a 
profitable exchange by giving his knowledge and ex- 

3 



4 PUBLISHER'S PEEFACB 

perience for that of others. For while he gives the 
knowledge of one man, and that without taking any- 
thing away from himself, he receives in return the 
ideas and information of many. The business prin- 
ciple, "that exchange is the best which gives both 
parties the largest possible profit," has been found 
as successful in the exchange of knowledge as of com- 
modities. 

These two tendencies in modern commercial life 
have led to the projection of the "Business Man's 
Library," of which this book is the second volume. The 
foregoing analysis of these tendencies also serve to 
point out the purpose of the whole series and of this 
second book. It is to tell the "how" of things : the tech- 
nique of commercial operations, the specific processes 
and actual methods necessary for the accomplishment 
of certain work. And this all is told, these processes 
are described and these methods discussed, by business 
men actually engaged in this line of work — men who 
have performed these acts, who have originated and 
used these methods, who know because they do. This 
series of books is intended, therefore, to teach the be- 
ginner the fundamentals and detailed methods of prac- 
tical business operations, and to give him who has been 
long in the harness new ideas for application in his 
own business. 

The subject taken up by the second book of the 
"Business Man's Library" is factory organization. Be- 
fore the factory or works can run to advantage, before 



PUBLISHEE'S PEEFACB 6 

any manufacturing business, great or small, can be 
placed upon a correct basis, the fundamental principles 
of factory organization must have been applied. These 
fundamental principles have never before been brought 
together in comprehensive form so as to constitute a 
basis for a complete study of factory methods. In this 
work may be found both basic principles and time- 
tried, specific methods for all departments of the fac- 
tory, however complex. 

A short sketch of the working history of the 
author of "Organizing a Factory" will be of interest, 
as showing particularly that the right man was selected 
for this work. Mr. Wood's technical engineering edu- 
cation was secured at the Boston Institute of Tech- 
nology. After graduation he took up at once the prac- 
tical side of plant operation, entering the service of the 
Westinghouse Company. Later he was connected with 
the Pope Manufacturing Company, the Pennsylvania 
Reaper Company, and at present fills an important 
position with the International Harvester Company. 
With these important industrial organizations his work 
has never been of routine, but always of a constructive 
character, to originate and plan, to develop and con- 
trast — often a difficult task when some guide exists — 
but, far more difficult when the trail has not even been 
blazed. Always a student of industrial organization, 
by education and experience he was enabled to secure 
the broad view, the thorough training, and the adequate 
grasp so necessary to the factory expert. 



6 PUBLISHER'S PREFACE 

The engineering experience necessary to produce a 
work of the character of "Organizing a Factory" is so 
rarely found, and so valuable when secured, that any 
step, in the dissemination of this knowledge is an im- 
portant event in the history of industrial organization 
and engineering. Knowing that the factory manager of 
the present day realizes the value of the information 
along this line, and always keeping in mind the ac- 
curacy demanded in its preparation, it is hoped that 
this book will not fail to be of exact service to those 
for whom this volume is designed. 

THE PUBLISHER. 



PEEFACE 

In revising and rearranging the series of articles 
written for "System" so that they might be published in 
book form, the writer has endeavored to enlarge them 
sufficiently to make the work complete, and to establish 
such a continuity and relation between them as to lead 
the reader on in sequence, step by step, in such a way 
as not only to enable but cause him to gather a compre- 
hensive understanding of the questions involved. 

The publication is not intended as a panacea for 
all industrial ills, but rather as an educational factor 
that will benefit alike both employer and employe, and 
possibly enable them to apply means to their own in- 
dividual ends that will be of mutual and material 
benefit. 

The work in no instance is hypothetical, but rather 
is the result of practical applications made by the 
writer in his every day work for the larger industrials, 
and is published now in book form with the hope that 
it will serve the purpose for which it was intended, 
by leading to a better administration and accounting 
thereof, on the part of all who may come into its 
possession. 

0. E. WOODS. 



CONTENTS 



CHAPTER I.— THE NECESSITY OF SYSTEM AND NEW 
METHODS 

Necessities of modern accounting — Analysis of the new method — 
Manager and departments — The trust regime — Dearth of scientific man- 
agers Pages 11-16 

CHAPTER II. — THE ORGANIZATION ELEMENTS AND 
AUTHORITIES OF AN INDUSTRIAL BODY 

Aims of modern industrial organization — Elements in industrial 
organization — Authorities for industrial body — Following steps of man- 
ufacture — Functions of general manager — Administration and account- 
ing chart Pages 21-28 

CHAPTER III.— DEPARTMENTAL AUTHORITIES, DUTIES 
AND RESPONSIBILITIES 

Relation of higher authorities — General management of business — 
Business manager — labor and authority — Bookkeeping — labor and 
authority — Correspondence — labor and authority — Sales — labor and 
authority — Purchasing — labor and authority — Orders — labor and author- 
ity — Superintendent — labor and authority — Factory power and testing — 
Shop carrying — labor and authority — Experimental — labor and authority 
Drafting — labor and authority — Receipts — labor and authority — Factory 
stores — labor and authority — Shipping — labor and authority — Tool 

room — labor and authority — Departments — labor and authority 

Pages 29-56 

CHAPTER IV.— THE ACCOUNTING OF EXPENSES AND 

COSTS 

Commercial and manufacturing expenses — Where to charge expenses 
— Division of costs — Productive and non-productive labor — Indicating 

actual expenses — Classification of labor — Distribution of expenses 

Pages 61-69 

CHAPTER v.— ANALYSIS OF DIFFERENT METHODS OF 
PAYING LABOR 

Day labor and costs — Piece-work systems — Premature adoption of 
piece work — Necessity of reduction — The premium plan — Its one weak- 
ness — The time limit — DifiEerential piece-rate system — A new cost 
system — Time limit on day-pay basis Pages 70-84 

9 



10 CONTENTS 



CHAPTER VI. — DEPRECIATION OF TOOLS AND ITS 
RELATION TO COST 

Antiquated methods common — A wage for machine tools — How to 
handle tables — Derivation of expenses chargeable — Real age of tools — 
Uses of depreciation tables — Tables show the actual cost. .Pages 85-92 

CHAPTER VII.— A COMPLETE ANALYSIS OF THE ELE- 
MENTS OF A COST SYSTEM 

Analysis to secure the skeleton — Facts concerning each part— Inven- 
tory of equipment Pages 93-96 

CHAPTER VIII. — THE MACHINERY OF COST GETTING 

Analysis of items, parts and operations — Accurate record — The bill 
of material — Bill of material and store departments — Use of time slip- 
Auxiliary functions of workman's slip — Total costs shown — Additional 
functions — Make-up of labor time sheet — Time sheet as record and pay- 
roll — Machine tool time sheet Pages 101-115 

CHAPTER IX. — LABOR RECORDS AND CLASSIFICATIOl^ 

Applicant's first record — Fluctuations of labor — Incentives to labor. . 
Pages 116-123 

CHAPTER X. — PERPETUAL INVENTORIES 

Necessary first steps — The rough stores ledger — Records on tools and 
general supplies Pages 124-127 

CHAPTER XI.— HOW THE EXECUTIVE MAY KEEP IN 
TOUCH WITH THE FACTORY 

Value of comparative figures — Comparative labor chart — Output com- 
pared with labor — Value of the chart Pages 128-134 

CHAPTER XII.— REDUCTION OF LABOR COSTS 

How piece-workers limit production — Learning the efficiency of 
labor — Wanton waste of power — Finding the leaks — Applying the 
leakage tests Pages 135-145 

GLOSSARY 
Pages ,--,146-156 



CHAPTEE I 

THE NECESSITY OF SYSTEM AND NEW 
METHODS 

Nowhere in the world of business at the present 
moment are conditions and methods changing more 
rapidly than in the work shop and factory itself. The 
application of new methods of processing, the invention 
of new tools, and the use of new combinations of cut- 
ting steels, are some of the things that in themselves 
are revolutionizing not only factory practice, but the 
character and skill of the labor employed; which re- 
sults in a tendency toward a vast increase in output 
per capita. These things are in turn all forcing new 
methods and ways into industrial administration. 

Factories today are being run less and less by the 
authority of experience only, and more and more by the 
authority of figures and facts. The superintendent and 
manager of long experience and intuitive knowledge 
only is forced to make room for the younger man, of 
less experience, perhaps, but who modernizes his work 
by the jurisdiction of figures alone. 

And the modern accountant in all this combina- 
tion is no longer simply the recorder of generalities, but 
a scientific organizer who purposes his work as much 
for organization and administration as he does for ac- 
counting. Ordinary book accounting as of old no 
longer fills the need, for book accounts do not show 
maximum possibilities; they only apply to what actu- 
ally may have been done; they are simply a record of 

11 



12 OKGANIZING A FACTORY 

facts without means of comparison. No accurate meth- 
ods of determining costs even could be obtained by the 
old methods of keeping accounts. 

Three things must always be obtainable in a 
modern accounting system: what has been done, what 
Necessities of ^® being done, and what could be done, 
Modern both as to volume of output and costs for 

ccounting manufacturing same. The necessity of 
this has brought about new systems and methods of 
accounting amounting to almost mathematical surgery. 

The factory, considered as a thing by itself, is a 
living, breathing, moving being, which has an anatomy, 
peculiar to itself of course, but which can, nevertheless, 
be analyzed in its every function. And it is right here 
that old and new methods differ in accounting. The 
modern and scientific accountant no longer takes an 
already existing condition in factory practice and ap- 
plies a method of rendering accounts for it; he first 
insists as far as possible on a proper departmental 
organization and relation, both as regards the move- 
ment of a product through the factory from raw ma- 
terial to finished stores or units, and as regards author- 
ity from the management down to the last man who is 
to be possessed of authority. Having accomplished this, 
he then takes the body industrial and classifies it into 
members and organs, and applies an accounting system 
that forces each and every one of these members and 
organs to function properly and render a correct ac- 
counting of itself. 

It is by such methods, and by such methods alone, 
that the managerial mind is enabled to grasp and in- 
terpret the whole body, and not some portions of it to 
the exclusion of others, which has invariably been the 
fault of old methods of administration. For, almost 



0. E. WOODS 13 

without exception, the tendency of every manager in 
the past has been in either one of two directions, some- 
times both — "along the lines of least resistance," or in 
such directions as particular tastes or past experience 
would nearly always, sometimes unconsciously, lead 
him. 

New methods analyze the anatomy of a business so 
closely that not the smallest detail or sub-detail of an 
Analysis of item escapes its pro rata amount of atten- 
theNew tion. Old methods, for instance, paid 

Method little if any attention to the details of 

single operations on a part, or even to the individual 
part considered as a whole in the construction of a 
unit of production ; neither did they take cognizance of 
the progress of work through the shop : but the modern 
manager or accountant considers every movement of 
material and every operation performed on that ma- 
terial as carefully as a bank looks after its cash bal- 
ances. 

It is true, as has often been pointed out, that all 
factories are not alike in detail, but it is also true, as 
has not always been pointed out, that the principles in 
the construction of an accounting system as used by 
one manufacturing institution should apply to another ; 
the detail may vary, but not the principles. 

What is needed is to provide a system whereby the 
management can view the body industrial under his 
charge as a whole without being prejudiced in any one 
direction, either by personal preference or solicitation 
from those under him ; a system, the principles of which 
will be so flexible that administration becomes what it 
should be — almost automatic in its day to day action, 
in which no contraction or expansion of the business 
can take place without at once affecting all correspond- 



U ORGANIZING A FACTORY 

ing relations. This is not to say that any one man would 
or should have sole charge of every detail connected 
with and required in the business. It does mean, how- 
ever, that every department can be brought into such 
Manager relation with all other departments that 

and the administration itself, or the acting 

epartments manager, is practically the head of every 
department in the business and acts as such in the ab- 
sence of the head appointed by him, and that the ab- 
sence of any one or several heads to a business could 
not in any wise cripple its general efficiency as a whole. 

To what can be attributed all this change in man- 
agerial and accounting necessities? It had its origin 
simultaneously with the consolidation of kindred in- 
terests into what are commonly termed "Trusts." The 
inefficiency and inaccuracy of old methods of account- 
ing became immediately apparent when outside expert 
accountants commenced to review individual industri- 
als for the purpose of placing valuations upon them to 
furnish a figure which would guide a syndicate in its 
purchase of same. Fictitious valuations and profits 
became so numerous that accountants were forced to 
devise new ways of analysis, and this in itself developed 
possibilities of accounting that hitherto had not been 
thought of. And the creation of industrial trusts, or 
mergers, in its turn, has also created a new demand in 
the qualifications required of managers and superin- 
tendents. The old superintendent or manager finds 
himself no longer the sole authority in his particular 
vocation; his requisitions and desires will only be 
granted when backed by proof of figures. 

In other words, an entirely different condition of 
regime is gradually spreading itself over the industrial 
world, bringing with it demand for talent that is scien- 



C. E. WOODS 16 

tific in its methods. Unfortunately, this is obtainable 
only in a very limited degree, at the present time. 
. Managerial and executive work has 

Trust never yet reached the dignity of a science 

Begime ^^ eyen of a profession; the artisan in 

industry is far better equipped in this respect, for he 
is molded by an educational process into a scientific 
worker at some particular trade and becomes a master 
at his art when he can set into activity causes that will 
produce predetermined effects — for this constitutes 
science in anything. 

Compare this with commercial man's education to- 
day, which consists mainly of an accumulation of in- 
dividual experience and judgment rather than a scien- 
tific understanding of the broad principles of organiza- 
tion, manufacture and commerce: it points clearly to 
the reasons as to why desirable business talent is not 
obtainable. Our educational systems have not antici- 
pated the rapidly changing conditions in the industrial 
world to anything like the extent that that world itself 
has. Ultimately a commercial education will receive 
the same dignity in its various branches as does an 
engineering or legal profession, and business manage- 
ment and executive work will be equally as exacting in 
its execution. 

The concentration of large interests has already 
recognized the need of all this, but at the present time 
Dearth scientific administration falls far below 

of Scientific what the new regime requires, for the real 
Managers scientific industrial and commercial sys- 

tem is as yet incomplete. The whole industrial world 
is still dealing with effects rather than causes. This 
applies not only to the handling of labor but in a large 
measure to commerce, which has been only too often 



16 ORGANIZING A FACTORY 

instanced by premature and unnatural growth, not only 
in individual corporations but in consolidated trusts as 
well. 

Every effort at the present moment is being made 
by the so called trusts to modernize their business at 
all points, and to this end their agents everywhere are 
on the lookout for talent that can help them reach the 
desired end, better salaries and better futures are the 
incentives offered, and from this one fact individual 
corporations have as much to fear as from the direct 
competition of the market. For the tendency of trusts 
is not so much to reduce market prices in competition 
as it is to reduce costs of production and marketing by 
securing and holding the necessary talent, thus leaving 
individual competition incompetently officered for the 
conflict. 



C. E. WOODS 



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CHAPTEE II 

THE ORGANIZATION ELEMENTS AND AUTHOR- 
ITIES OF AN INDUSTRIAL BODY 

A man makes two distinct steps to reach a given 
end: 

First: He acquires knowledge concerning the 
thing in question. 

Second : He applies that knowledge to the accom- 
plishment of some definite purpose. 

The first step is analytical and comparative in its 
scope; the second is creative and constructive in its 
purpose, and whether a man maps out a professional or 
a business career for himself, this rule prevails. The 
surgeon must study the body physical before he can 
operate upon it : its organization, in general and in de- 
tail, must occupy his first attention. The architect 
must learn the physical details of materials and their 
correlation in strengths and usage before he is qualified 
to design a structure. The same principle applies to all 
engineering professions, and, as a universal law, must 
also apply to business, and especially to manufacturing 
industrials. A factory with all of the various depart- 
ments and authorities which go to make up the exist- 
ence and control of the body industrial has an anatomy 
as clearly defined as has the body human, and is usu- 
ally healthy or diseased in exact ratio to the governing 
power of the latter. 

The first interest centers wholly upon organiza- 
tion ; without an understanding of this, one cannot be 
qualified to administer to the wants of the body indus- 

21 



22 ORGANIZING A FACTORY 

trial, whether to keep it healthy or to relieve it of 
disease. 

The aim of organization, literally defined, is : 

First: To systematically unite individuals into a 
body purposed to work together for a common end. 
Aims of Modern Second: To unite in reciprocal and 

Industrial concrete relations and duties. 

Organization rpj^jp^j . rp^ ^^^^^ j^^^ systematic con- 

nection and co-operation parts of a whole. 

Fourth, and specifically as applied to an industrial 
body: To prepare for the transaction of business by 
electing and appointing oflflcers, committees and au- 
thorities over divided and subdivided parts of a whole 
business so that the duties of each shall correlate and 
co-operate with all. 

These definitions show the first necessity of com- 
mercial or industrial organization — i. e., co-operative 
working by the head of each and every department. 
Any organization that is not so working is diseased, 
which, unfortunately, is often the case. 

The writer has found, in analyzing and diagnosing 
organization and accounting work, that charts can ex- 
press more on one page than is sometimes expressed in 
several chapters of writing, and has been the author 
and originator of many methods of charting industrial 
expressions. It is necessary, as a first step, for ana- 
lytical and other purposes, to make a chart expressing 
all of the relations governing the organization of a busi- 
ness so as to show the very foundation upon which all 
authorities, accounting, and business transactions are 
based and conducted. There have been more failures 
scored both personally and financially for lack of these 
very elements in a business than by reason of any other 
one thing. As well try to build a house without a foun- 



C. E. WOODS 23 

dation as to try to conduct a business, especially a 
manufacturing business, without proper organization. 

The actual manufacture of material into a specific 
product is a sort of digestive process which must have 
a functioning organization purposed to meet the re- 
quired ends, just as the human body has, and it is 
governed by similar conditions. It must also be 
directed by a specific intelligence and must have in- 
ternal and external avenues of correspondence to keep 
it alive; and, like a living organism, must adhere to 
the eternal economy of things and show a profit by its 
activities or it cannot progress. 

To exemplify this in a simple way, the writer has 
laid out Figure I, showing the prime elements com- 
Elements in posing the anatomy of an industrial body. 
Industrial One does not have to draw on the imagina- 

Organization ^^^^ ^^^.^ ^^^ ^^ make a comparison of this 

anatomy with that of man. It has its mind, will power, 
and brain to direct it, as indicated by the stockholders, 
directors and executive officers, a heart which keeps in 
flow the circulating medium internally ; and avenues of 
correspondence with the outside world which furnish 
to it the very elements of existence. 

This chart shows first, that the stockholders are 
simply elements belonging to the general public who 
have made an investment for some specific purpose; 
second, that immediately after this, the election of 
directors sets into action the first internal factor in the 
body, which is then divided into different functioning 
powers by the election of executive officers. 

The final circulation of the business is kept active 
by the auditor or comptroller and is divided into four 
factors, viz.: Administration, Labor, Upkeep and Ma- 
terial Expense, the dotted lines within the oval indi- 



24 ORGANIZING A FACTORY 

eating to what extent this circulation enters into the 
organization as a whole. Labor permeates through all 
departments, Material not extending beyond the pur- 
chasing and accounting departments ; while Up-keep ex- 
pense permeates through all departments and is com- 
posed — as indicated by the second dotted line within 
the oval, of both labor and material. As Administrative 
Expense is but a local circulation of expenditure in the 
Administrative Section, it is indicated by the line so 
dotted. 

This chart also shows what the avenues of corre- 
spondence with the outside world are, incoming corre- 
spondences consisting, first, of the stockholders who 
make an investment; second, the material receipts; 
third, the commercial receipts. 

The outgoing correspondences are, commercial dis- 
bursements in payment for material received and manu- 
factured output which comes back in the form of com- 
mercial receipts. 

The least number of prime elements to which a 
manufacturing business can be reduced and retain a 
proper functioning power is also indicated. In the 
Manufacturing Section, it is Purchasing, Stores and 
Manufacture. In the Commercial Section, it is Ac- 
counting, Advertising and Sales, with a general man- 
ager at the head of and connecting the two. No matter 
how small a business, it must have this much of an 
anatomy. No matter how large it may grow, its ulti- 
matum is simply the subdivision of these prime ele- 
ments into extended functioning powers. 

We now come to Figure II, which is one of the 
most interesting and valuable charts made by the 
writer in his work for the larger industrials. While it 
is reduced here to the simplest possible expression, it 



C. E. WOODS 25 

at the same time contains all of the elements which 
govern the laying out of an organization of any magni- 
tude. This is the Chart of Prime and Working Au- 
thorities, showing exactly where each authority is re- 
lated to the others and how far each authority may ex- 
tend in the business. 

The writer has retained in this chart the adminis- 
trative, commercial and manufacturing sections in the 
Authorities for Position as exhibited in Figure I, and 
Industrial has separated these different sections into 

^°^^ specific departmental divisions for the 

purpose of showing how the authorities governing dif- 
ferent departments are related to the industrial body as 
a whole. 

Departmental division is a necessity oftentimes not 
well understood, and means much more than a mere 
division of authority. It is necessitated by the fact 
that different methods of procedure in the manufacture 
and marketing of goods require widely varying experi- 
ences with the authorities that govern them; so that 
the division of a business into departments is controlled 
by two elements, viz. : The character of the labor it is 
necessary to employ, and the character of the material 
processed. Therefore, in order to know the proper 
division of a manufacturing business into departments 
it is necessary to first trace the essential processing of 
material from a raw state to a finished product by pro- 
gressive steps, and then lay off the departments along 
this line of travel in accordance with its differences in 
the elements above designated. 

In Figure II we see in the Administrative Sec- 
tion that the stockholders control the directors and 
that their paths of authority do not extend beyond this. 
We then see that the directors control the executive 



26 ORGANIZING A FACTORY 

officers and form themselves, or a part of themselves, 
into an executive committee, and that the paths of 
authority for both the directors and executive com- 
Followine mittee are identical, but that they do not 

steps of extend beyond the line which separates 

Manufacture ^jjem from the space occupied by the gen- 
eral manager. It also shows that the general manager 
is accessible to all of the executive officers. This chart 
further shows the exact position of the auditor or con- 
troller of the company as closely identified with the 
board of directors, all the executive officers and the gen- 
eral manager ; but that his office does not extend beyond 
that. It is an isolated dotted circle, which indicates 
the independence of this office as regards the work per- 
taining to it. 

Coming now to the general manager's path of au- 
thority, we see that it extends entirely around both the 
Manufacturing and Commercial sections and that all 
departments coming up to the dotted line are directly 
answerable to the general manager for the conduct of 
their duties. 

In Department No. 1 the purchasing agent is the 
first division into sub-authority, whereby the chief 
stores clerk. Department No. 2, is under the purchasing 
agent and communicates only with the manager 
through the former. 

Department No. 3, office of superintendent, has a 
path of authority extending under the general manager 
as far as the Manufacturing Section goes, and sub- 
authorities under him of chief engineer, assistant super- 
intendent and chief shipping clerk, under whom the 
business is again divided into sub-authorities, as indi- 
cated by Departments No. 5 to No. 15 inclusive. 

The writer has found this method of procedure in 



C. E. WOODS 27 

charting organization most effective, as the lines of au- 
thority can be exactly and definitely set and extended 
into any number of sub-divisions of authority that a 
business may require. 

The prime distribution of expense is another inter- 
esting grouping. This shows, first, the confines of the 
Functions of administrative expense ; second, the manu- 
General facturing non-productive expense; third, 

anager ^j^^ manufacturing productive expense; 

fourth, the commercial or selling expense. 

This method of procedure is so flexible in a chart 
that it can be divided up to meet the requirements of 
any business. 

One point to which attention is called in connec- 
tion with this chart is the fact that while the shipping 
and warehouse are under the authority of the superin- 
tendent, their expense is a commercial or selling ex- 
pense, the details of which will be studied later in the 
Accounting Charts. 

The laying out of such a chart as this is the very 
foundation for all administration and accounting re- 
quired, and when laid out after this method and given 
the consideration due to any specific business, it clears 
up more questionable points and avoids more disputes 
regarding authorities and necessities than any method 
that has ever before been devised. It is wonderfully 
effective in this respect because of the very simplicity 
employed in its construction, and once laid out a copy 
should be placed in the hands of everyone having au- 
thority in a business. 

The writer uses similar charts for making records 
in many ways. The actual Organization Chart em- 
ployed for any specific business has each department 
space filled in with not only the names of the heads of 



28 OEGANIZING A FACTORY 

the departments, but also the names of all sub-authori- 
ties that the head has under him ; so that the Organiza- 
tion Chart shows not only what is exhibited as funda- 
mental here, but also the entire personnel of an organ- 
ization above the ordinary labor employed. 

In most instances the application of new ideas has 
to be made to already existing plants, and in analyzing 
such for the purpose of determining most economical 
production, as well as a system for keeping costs and 
records, it must always be borne in mind that the first 
desideratum is the movement of product from raw ma- 
Administration *^^^a^ ^^ finished units, irrespective of any 
and Accounting geographical departmental conditions or 
Chart locations already established, as it is only 

by this means that possible rearrangements and loca- 
tions are attained. 

With such a chart as Figure II arranged on such a 
basis, i. e., with departments put in sequence through 
the manufacturing section, in accordance with the dif- 
ferent movements required in the processing of ma- 
terial, it becomes a very easy matter then to take geo- 
graphical condition into consideration and arrange 
them in such a way as to make the movement of product 
manufactured continuous in one direction. 

This, of course, cannot always be carried out in 
already existing plants, but the writer has been able to 
make some wonderful reductions in costs on this point 
alone. 



CHAPTEE III 

DEPARTMENTAL AUTHORITIES, DUTIES AND 
RESPONSIBILITIES 

Having laid out the general chart of organization 
by dividing it into authorities, and establishing the 
lines of its beginning and termination, it must be fol- 
lowed up still further by carefully laid out written in- 
structions to each department head. In other words, a 
written set of rules governing these authorities should 
be carefully compiled in detail. 

To illustrate this, I will reproduce here a set of 
such rules as I have laid them out for a number of fac- 
tories so that the reader may become not only thor- 
oughly conversant with the method, but also with many 
general details of importance which would apply to 
any manufacturing business — although, of course, no 
one set of rules in all their details would apply to every 
business. 

The division of a business into departments, and 
their authorities would be of little value unless followed 
up by such specifications as would enable every author- 
ity to thoroughly understand his duties and responsi- 
bilities. 

In this I do not propose to go farther up than the 
General Manager, as the duties of Committees, Direct- 
Eclation of ^^^ ^^^ higher authorities would be foreign 
Higher to this work. I will only say that a clear 

Authorities understanding of the relation between the 
General Manager and an Executive and Advisory Com- 
mittee is essential. 

29 



30 ORGANIZING A FACTORY 

The General Manager usually has limitations set 
upon him as to expenditures and obligations or con- 
tracts that he shall assume; before executing any ex- 
ceeding these he must have the sanction of the Advisory 
Committee. And the Advisory Committee stands in ex- 
actly the same relation to the Executive Committee. 
That is to say, a General Manager may have supreme 
authority in expenditures and obligations to perhaps 
110,000.00. An expenditure exceeding that amount 
must be passed by a vote of the Advisory Committee. 
The Advisory Committee, in turn, has jurisdiction up 
to, say, 125,000.00. Exceeding this the matter must be 
passed upon by a vote of the Executive Committee, 
which, acting as the representative of the Board of Di- 
rectors, has no limitation set upon it. In case no Ex- 
ecutive Committee exists, this applies directly to the 
Board of Directors. But where a corporation has a 
large board it has been found most effective to utilize 
the services of an Executive Committee, elected from 
the Directors by themselves, to act in their place. 

In very large corporations there are often other 
committees organized, as for instance. Committee of 
Finance, Committee on Sales, Committee on Improve- 
ments, and so on, but they are usually short termed 
and elected for some specific purpose, while Executive 
and Advisory Committees are a permanent part of an 
organization. 

General Manager, under the direction of the Execu- 
tive and Advisory Committees, is in full charge of all 
-, . the company's commercial and manufac- 

Management of turing affairs, as indicated in Figures I 
Business ^^^ jj ^^^^ jg usually assisted in the 

larger corporations by two competent deputies: first, 
a Business or Assistant Manager; and, secondly, a 



C. E. WOODS 31 

Superintendent or Works Manager. The authorities of 
these two men in the business are distinctively separated 
one from the other ; the former is connected solely with 
the business or commercial affairs of the Company ; the 
latter has sole charge of the producing or manufactur- 
ing end of the business. 

Specifically, the points that require the attention 
of a General Manager are : 

1. Rentals, depreciations, special machinery for 
contract sales and by order of the Executive Committee, 
the purchase of real estate, buildings, equipment and 
extensions. 

2. Banking arrangements, notes, discounts, special 
credits, inventories, balance sheets, contracts, taxes, 

3. Fixing of employes' bonds' insurance, fire, 
sprinkling, and watchman's service. 

4. Creation of card, cost, accounting, and depart- 
ment systems. 

5. The appointment of all offices and officers under 
Manufacturing Authority. 

6. Distribution of all mail matter, and creation of 
systems for recording, filing and mailing of same. 

All contracts and all purchases out of the order of 
regular requirements come directly under a General 
Manager's administration, whether they are for ma- 
chinery for the plant, or for the filling and executing 
of sales contracts, or for items not manufactured by 
the Company but sold by it in conjunction with its 
regular production — such as machinery, supplies, and 
accessories. This last authority is exercised only in 
case the purchase is of a specific nature from time to 
time; where supplies and accessories are carried con- 
stantly in a merchandise account, they are purchased 
through the regular channels by the Purchasing Agent. 



32 ORGANIZING A FACTORY 

It is the General Manager's duty to compile and 
arrange the sale prices of all products manufactured in 
the business, to arrange for and supervise the compila- 
tion of all the inventories from data which shall be 
furnished him by the heads of each different depart- 
ment through their respective channels, the arrange- 
ment of which should be in such a way as to check itself 
with the Auditor's financial report. 

The general system of bookkeeping adopted must 
be provided for by the General Manager in such a way 
as to harmonize with whatever system of keeping costs 
and other records that he may introduce into the busi- 
ness. It must be a system that, in connection with the 
monthly reports and costs system, will best exhibit the 
constant expenditures and receipts in such a way as to 
clearly indicate progress or retrogression in the busi- 
ness and how and at what point it exists. 

In many companies a Business or Assistant Man- 
ager is appointed whose duty is specific in its nature. 

Business or Assistant Manager, under the direction 
of the General Manager, has full charge of all office 
Business Man- ^^^^ ^^^^ especially pertains to the com- 
ager— Labor mercial end of a business, is responsible 
and Authority ^^ ^^^ General Manager for all the de- 
partments coming under his supervision, and must at 
all times consider himself as the General Manager's 
deputy. 

Aside from taking care of the general and specific 
correspondence coming to his office, looking after the 
details pertaining to the various departments coming 
under his direct charge, the three most important 
duties of the Business Manager, and the real purpose of 
his office are : first, the promotion of sales ; second, the 



C. E. WOODS 33 

collection of accounts; and third, the auditing and 
record keeping of all correct commercial business. 

In consequence the Business Manager passes on 
all requisitions for material; after having passed on 
these, he renders them to the Purchasing Agent of the 
Company. He also passes on deliveries covering all 
purchases; in other words, he investigates the time and 
periods at which the various requisitions call for ma- 
terial, and from his knowledge of requirements and 
sources of supply, sets the time of delivery that money 
may not be unnecessarily tied up in such items. 

Further, he passes on all bills payable, and renders 
them over his signature to the accounting department, 
that disbursement may be made over his voucher. In 
this manner, times of delivery and payment of bills can 
be regulated and balanced, and the carrying of surplus 
stock avoided or the making of a premature investment 
of money in materials and supplies easily checked. 

As the Purchasing Department comes under the 
Business Manager, it is his duty to keep himself fully 
posted regarding the demand for all supplies used in 
the business, and to constantly confer with the Pur- 
chasing Agent regarding them, in order that an excess 
of purchases is not made of any item or items, and that 
items are bought at lowest prices. 

Especially is it his duty to see that all monthly 
auditing of the Company's business is properly done for 
review by the General Manager and Board of Directors 
at such times as are set by them for such investigation, 
and to compile all items belonging to his departments 
and administration for the rendering of inventory by 
the General Manager. 

The Business Manager has no authority to change 



34 ORGANIZING A FACTORY 

any system of book, record, cost of filing, as installed 
by the General Manager, nor has he the authority to 
contract for the purchase or disposal of anything not 
under him, except the General Manager shall by special 
instructions so direct; but he is responsible for the 
maintenance of the discipline and operation governing 
the departments under the regime created by the Gen- 
eral Manager. He should constantly confer with the 
General Manager concerning all departments under 
his charge. 

One point should be emphasized here. The Busi- 
ness Manager should not have any direct authority over 
the Superintendent, as the latter is responsible to the 
General Manager in exactly the same sense that he 
himself is, and should be a person competent to act 
directly in the discharge of his duties, as the head of the 
manufacturing end of the business, just as the Business 
Manager is at the head of the commercial end of the 
business. The same relation should pertain vice versa, 
otherwise the efficiency of these authorities will be im- 
paired and unnecessary confusion often arise. 

General Accountant, under the direction of the 
Business Manager, has charge of all bookkeeping, bill- 
Bookkeeping- ^"^' P^**y •^^^^' ^^^ ^^^ statements and 
Labor and financial records covering the Company's 

^ °^^^ commercial and factory business. He has 

under his charge all bookkeepers, assistant bookkeepers, 
bill clerks, cashiers and other help employed in this 
department ; he has charge of all pay rolls as per times 
account rendered by the Superintendent and Business 
Manager for all help employed in the factory, and for 
all help employed in the office (the time account of lat- 
ter should be kept separate under the Business Man- 
ager). 



C. E. WOODS 35 

The General Accountant has no authority to 
amend or change the system of accounting, as installed 
by the General Manager, and no authority in any other 
department except his own. He should, however, have 
full and complete access to all details that interfere 
with or pertain to the Company's accounting of any 
nature, in order that the rendering of his monthly 
statements may be clear in every detail, covering the 
commercial, factory and private Company accounts. 
The Accountant has no authority to make disburse- 
ments except over properly audited vouchers. All ac- 
counts collectable by the company should be enforced 
by the Accountant up to the point where legal assist- 
ance is required ; at this stage the Business or General 
Manager will take up the issue direct or through the 
Corporation Counsel of the Company. 

All help employed in this department is responsi- 
ble to and hired by the Chief Accountant, and placed 
under such bonds as the General Manager shall require. 
His own bond is fixed by the General Manager direct. 

The character of help employed, the calendar con- 
dition of the books, and the workmanship of the ac- 
counting are the sole responsibility of the General Ac- 
countant. 

In many companies the General Accountant holds 
the office of Treasurer, which is a most excellent idea, 
as it not only gives his office authority, but gives him 
great power in the enforcement of his duties in relation 
to the public, imparts more dignity to his presence in 
the office, and strengthens his interest in the business. 
To hold his office, he need not necessarily be a director 
or even a stockholder, although it is much better if he 
is both a stockholder and director. 

Inasmuch as this is a very importaht office it 



36 ORGANIZING A FACTORY 

should have most careful consideration in the person 
selected to fill it as regards experience, character and 
disposition ; for he comes first in line for promotion to 
Business Manager, and thence to General Manager. 

Chief Stenographer, under the direction of the 
Business Manager, has full authority in the employ- 
Correspondence ^^^^ of all labor and clerical work re- 
— Labor and quired in the department of correspond- 
uthonty ^^^^^ . j^^ j^^^ charge of all the filing of cor- 

respondence of whatsoever nature which comes in this 
department and is responsible for its safe-keeping and 
proper filing. 

All stenographers employed in the ofBces come 
entirely under the Head Stenographer's authority, and, 
as required for dictation throughout the various de- 
partments of the business, are furnished at the option 
of the Head Stenographer — according as they may be 
occupied or otherwise. By this means any stenographer 
becomes sufiiciently familiar with the business to be 
available for any department — a great convenience 
when the stenographic work of departments is irregu- 
lar. In addition to this, it throws a safeguard around 
the correspondence of the office by breaking the con- 
tinuity of work in any one department for any one 
stenographer; in plain words, no one stenographer will 
become too well acquainted with the Company's secrets 
or internal affairs, and dismissal will carry no appre- 
hension to the Company on this score. Nearly all large 
concerns, not using phonographs, now employ this 
method, the only exception being where private secre- 
taries act as stenographers for some of the officials. 

All materials used in this department, classified as 
stationery, must be bought upon requisition of the 
Head Stenographer by the Purchasing Agent, and a 



G. E. WOODS 



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C. E. WOODS 41 

proper account rendered by the Head Stenographer in 
return for them. This account includes a daily report 
of the number of letters, packages, and parcels mailed, 
with the number and denomination of postage stamps 
used in this department. 

The Head Stenographer has charge of and is held 
responsible for the condition of all machines, desks and 
other appliances used in this department, and renders 
all requisitions for repairs required. All such work is 
charged to the proper account of expenses incurred in 
this department each month. 

In addition to this the Head Stenographer has 
charge of all regular supplies used in the office of what- 
soever nature, including all blanks, bulletins, cata- 
logues, literature, postage stamps, and so on, and de- 
livers them only on proper requisitions from the other 
departments. This constitutes what might be termed 
the office stores, the inventory and maintenance of 
which devolve upon the Head Stenographer. 

When regular office literature of any kind is be- 
coming low the Head Stenographer must notify the 
Business Manager, who at once proceeds to take up the 
matter with the General Sales Agent, from whom the 
production of this literature emanates. If the same 
literature is to be used over again, a requisition is 
passed on to the Purchasing Agent for making of con- 
tract with the printers. The same procedure applies to 
all stationery. 

Postage stamps, however, should be obtained 
through the Cashier of the Accounting Department, or 
from the General Accountant, who will then be able to 
make proper distribution of the expense charge. Negli- 
gence of this one item alone is costing many concerns 
hundreds of dollars annually. 



42 ORGANIZING A FACTORY 

General Sales Agent, under the direction of the 
Business Manager, has full authority over the employ- 
Sales-Labor iiient of the salesmen, the making of their 
and salaries, the passing and allowing, or re- 

Authority jection of all traveling expenses incurred 

by them, and the arranging of all representation for the 
Company on a commission basis. But he can make no 
permanent contracts with dealers that are binding, un- 
less they have been approved by the General or Business 
Manager. 

All prices made by him for apparatus must be 
standard prices, confined within such circle of contract 
as will be furnished by the Business Manager. If out 
of the regular method, terms of payment and deliveries 
must be subject to approval. 

All photographing of apparatus for oflSce record, 
advertising or catalogue purposes is also under the 
charge of this offlce. 

This office does not carry with it any authority to 
make sales for the company of any apparatus or sup- 
plies not listed as standard product or regular supplies, 
nor does it carry with it the authority to make con- 
tracts for the sale or delivery of any auxiliary ma- 
chinery, such as engines, except subject to approval by 
the General or Business Manager. 

The General Sales Agent has full charge of all 
advertising contracts for journal, magazine or any 
periodical advertising, and of the compilation and is- 
suing of all factory advertising literature, such as cata- 
logues, bulletins and price lists. The accounts of the 
latter, as distinguished from periodical advertising, 
must be kept entirely separate. No single contracts 
can be made by this office for periodical advertising ex- 



C. E. WOODS 43 

ceeding a certain fixed sum in amount and a fixed 
period of time. 

All contracts for oflSce literature must be passed 
through the regular avenues for purchase, and all ac- 
counts contracted for by this office must be passed 
through the regular avenues of auditing before pay- 
ment can be made. 

The reason for putting all photography, cut-making 
and advertising under this department is because it 
belongs exclusively to the expense of making sales, and 
because a thoroughly competent General Sales Agent 
should be a man thoroughly versed in the art of adver- 
tising. Therefore, should an advertising man be em- 
ployed expressly for such work, he should come under 
the authority of the General Sales Agent, as his salary 
is really an exp€nse chargable to sales. 

The importance of this office to any company 
should provoke a liberality of spirit and policy in ex- 
cess of any other one department, for on the successful 
exercise of this department depends in a large measure 
the success of the business. Good salesmen are not 
always good in other qualities, and a General Sales 
Agent should always give such things due considera- 
tion. 

Purchasing Agent, under the direction of the Busi- 
ness Manager, has full authority in the purchase of reg- 
Purchasine- "^^^ ^^^ standard supplies and material 
Labor and for the Company, and for all machinery 

Authority ^j^^ ^^j, ^jj power Supplies as coming in 

regular form over properly audited requisitions. The 
Purchasing Agent, however, has no authority to pur- 
chase anything except what he knows to be such re- 
quirements from experience, except by direct instruc- 



44 ORGANIZING A FACTORY 

tions from the Business or General Manager. Any- 
thing out of the regular requirements, such as auxiliary 
machinery for sales contracts, building material, real 
estate improvements or complete buildings, must have 
the personal audit of the Business or General Manager, 
before authority is vested in the Purchasing Agent to 
exercise his office. 

All purchases of any magnitude should be made 
only after receiving bids from several sources on the 
same requirements, and then the purchase must be 
placed with the lowest bidder, all other things being 
equal. 

It should be the Purchasing Agent's duty to keep 
a complete and indexed reference file of catalogues and 
price lists of each and every thing used and purchased 
by the company in connection with its business, and a 
private card system covering all prices and discounts 
on them. The latter should be kept in conjunction with 
his regular card system of quotations which should be 
separate from his card system covering purchasing 
orders. Further, all confidential prices and quotations 
on the cards should be kept in symbol, the key held only 
by the Purchasing Agent, the Business Manager, and 
the General Manager, thus preventing any collusion be- 
tween minor employes and the representatives of other 
companies. 

All requisitions for material and supplies and 
minor purchases, must have the audit of the Business 
Manager, before being executed by the Purchasing 
Agent, and all requisitions for machinery or equipment 
must have the General Manager's audit before purchase 
is. made. 

Chief Order Clerk (sometimes Chief Engineer, and 
sometimes the head of the order and schedule depart- 



C. E. WOODS 45 

ment), has entire charge of the issuing of all prodii'ction 
orders for shipping to the factory, as per sales orders 
handed him from the sales department or manage- 

__ ment, and is responsible for the proper 

and classification of these orders into regu- 

Authority j^j, products, parts and repairs, mer- 

chandise account, or outside contracts. Whether 
goods are already in stock ready for shipment, or 
are to be made up as per order does not concern the 
Chief Order Clerk, except in so far as time of delivery 
is concerned. All production orders issued to the fac- 
tory for the making up of stock goods must pass 
through the hands of the Chief Order Clerk — they pass 
directly from the General or Business Manager to him 
and then the Superintendent. Notification of all ship- 
ments by the Shipping Clerk come direct from the Chief 
Order Clerk, are O. K.'d by him in accordance with his 
original order, and passed to the accounting depart- 
ment for the rendering of an invoice. Where shipments 
are made in installments covered by one shipping order 
number, the responsibility for the getting out of the 
order does not cease with the Chief Order Clerk until 
the entire shipment is completed, after which all re- 
sponsibility on his department ceases. 

Where a Chief Engineer is employed, as in an auto- 
mobile or any other business making a constant demand 
for drawings and engineering work, the draughting 
room and the model and experimental room should 
come under his direction. In such case, all orders for 
production of any kind must first pass through his 
hands, be checked, and have drawings and bill of ma- 
terial attached to them by him, unless the necessary 
drawings are already in the factory. In that event no- 
tation of this fact must be made on the order and bill 



46 ORGANIZING A FACTORY 

of material before they are passed by him to the Super- 
intendent. In some lines of work, the office of Chief 
Engineer would not extend beyond the model, experi- 
mental and draughting room, and sometimes not be- 
yond the model room. 

The management will always have to regulate the 
office of Chief Engineer in accordance with the neces- 
sities of the case. Where a Chief Engineer is not em- 
ployed at all, the draughting room comes directly under 
the General Superintendent, and all drawings before 
going into the factory for execution must bear the sig- 
nature of his approval. 

Superintendent, under the direction of the General 
Manager, has full charge of the manufacturing end of 
Superintendent ^^^ business. Independent of the regular 
—Labor and workings and department organization of 
Authority ^j^^ factory, the Superintendent has di- 

rectly under his charge all timekeeping and all inspec- 
tion of work in factory, which is in no way under the 
charge of any departments or foremen of departments ; 
that is, all inspection of work must be directly looked 
after by the Superintendent, or such clerks or inspec- 
tors as he shall deputize in his place. This is done that 
there may be absolutely no collusion between the fore- 
men of the various departments and the inspectors who 
pass on the work produced under the various foremen's 
supervision. 

The Superintendent is responsible for all requisi- 
tions made for material, machinery and supplies, for 
all requirements and requisitions for the arrangement 
and allotment of work throughout the factory, and 
their execution on time in accordance with the General 
Manager's orders. 

He has sole responsibility for the class, character 



C. E. WOODS 47 

and quality of the labor employed throughout the fac- 
tory, and the discipline under which this labor is main- 
tained. He has full and complete authority in the ap- 
pointment of all foremen and deputies employed under 
his charge. 

As the Superintendent is the connecting link be- 
tween the manufacturing end and the commerical end 
of the business, he should always be prepared for con- 
ferences on any matters pertaining to the whole busi- 
ness at a moment's notice. To do this his ofiflce must be 
constantly posted and up-to-date regarding all con- 
ditions of material, supplies and work under his charge, 
in order that he may estimate the time required for the 
execution of any construction under consideration, and 
be prepared for steps of an extraordinary nature that 
might be needed for the fulfilling of any contract out 
of the usual order. 

The Superintendent is responsible for the execu- 
tion of all shipments as per order of main office, and 
must be thoroughly posted and have data compiled rela- 
tive to transportation for all requirements demanded 
by the business of both intake and output. This in- 
cludes the complete schedule of freight rates to all 
points of distribution, and the obtaining of all special 
rates for any special requirements. 

The office of Superintendent pertains strictly to 
the producing end and not the creating end of the busi- 
ness, consequently he is in no way responsible for the 
designs or working of apparatus built, further than its 
compliance with specification and drawings delivered 
him as approved by the General Manager, except in so 
far as he himself shall design or improve for the Gen- 
eral Manager. 

It is the Superintendent's personal duty to see that 



48 orga:nizing a factory 

all insurance requirements are maintained, that a 
proper fire service is incorporated, and that all neces- 
sary watchmen and watchman's devices are provided. 

He must carefully keep watch of the service being 
obtained from the equipment, that the machine tool 
wage may be kept as near standard as possible by a 
proper distribution of the work throughout the factory. 

Specifically, his duties are: first, production; sec- 
ond, delivery of production ; third, safety of property. 
These three form the prime captions for his thousand 
and one duties. 

Mechanical Engineer (usually the Assistant Super- 
intendent), under the direction of the Superintendent, 
Factory Power ^^ responsible for the conditions, opera- 
and tion and maintenance of all primary 

Testing power units, such as the boiler, pumps, 

engines and all their auxiliary machinery, generators, 
storage batteries, all motors used for driving apparatus 
and machinery throughout the factory. 

He has charge of all engineers, firemen, oilers and 
watchmen, and is responsible for all plumbing and sani- 
tary arrangements. Further, in some kinds of busi- 
ness, the Mechanical Engineer has direct charge of all 
labor in connection with the testing of the product, 
which shall be delivered to him from the assembling de- 
partment, and returned by him to the assembling de- 
partment. 

He is responsible for all supplies relative to the 
units under his charge, such as coal, oil and waste, and 
makes all requisitions on the Superintendent for same. 

All drawings and designs for factory extensions, 
plant enlargements, factory arrangements and provis- 
ions come under this office, as do all railroad provisions 
and connections, coal storage, water supply, and so on. 



C. E. WOODS 49 

This department is responsible for the appurte- 
nances used for moving machines around the building, 
Shop Carrying ^^^^ ^^^ handling of all Shop Carrying 
—Labor and throughout the factory, and has charge of 
Authority ^jj ^^^j, ^^^^ j^ jg ^j^ ^jjj^ department 

that all the other departments depend largely for the 
taking away of their products, placing of work and 
tools in position, and delivering work from one tool to 
another. Consequently, this department must be con- 
sidered in the light of an auxiliary department to all 
the other producing departments, as it acts as a me- 
dium for collecting the work from all the other depart- 
ments and uniting them into one unit. Therefore it is 
the duty of the foreman of this department to expedi- 
tiously and faithfully exercise every requisition on his 
department whether coming from the Superintendent 
direct, or by an arrangement of the Superintendent 
with the foremen of the other departments to pass 
requisitions without his audit. 

However, this department is isolated from all 
others, and a separate account must be kept of all work 
done by it ; but, as a whole, it must be considered on the 
same basis as the tool room department, and the fore- 
man must be invested with authority to act independ- 
ently in taking care of requisitions for services in this 
department. 

Chief Engineer or Master Mechanic, as the case 
may be, under the direction of Superintendent, is in 
charge of the experimental work. This department 
. , must be entirely isolated from all other 
Labor and departments in the factory, as its sole 

Authority. purpose is for the developing by experi- 
ments items that may form a product for sale, the only 
exception would be model work done for outside parties 



50 ORGANIZING A FACTORY 

on a contract, in which, case the receipts would be an 
earning by this department to credit against its gen- 
eral expense. Where model and experimental work is 
done in the tool room, as is sometimes the case, the 
charge must be distinctly for experimental work and not 
be confounded with the general expense belonging to 
tool room charges. If the models after they are per- 
fected should be sold, the model room should be credited 
with this amount as against its expense, as often a 
little care and study of experimental and model work 
on the part of the management would enable a large 
portion of this work to be finished into an actual prod- 
uct that can be sold, instead of going, as is often the 
case, entirely to the scrap heap — in which case the out- 
put should go into regular product account, and be 
credited to this department exclusively. 

Chief Draftsman, under the direction of Superin- 
tendent, or Chief Engineer, as the case may be, must be 
Drafting-Labor ^ ^^^ thoroughly qualified, technically, 
and mechanically and mathematically, to have 

Authority charge of the making of all drawings re- 

quired in the factory. It is the duty of the Chief 
Draftsman to number, classify and file all pencil 
sketches, tracings and ink drawings, to keep a proper 
record of all negatives used for either photographs or 
blue prints, and to keep a proper record of all blue 
prints made either from drawings or negatives. 

It is the strict duty of the Chief Draftsman to per- 
sonally check over all drawings made in the drafting 
room, and ascertain that they are correct, before they 
are printed and issued to the factory for work to be 
executed from; neither the Superintendent or Chief 
Engineer assume any responsibility in this respect. All 
requisitions for material and supplies for the drafting 



C. E. WOODS 51 

room must be made directly on the Superintendent, and 
all timekeeping of this department must be kept by the 
regular timekeeper and separated from all other depart- 
ments. 

Receiving Clerk, under the direction of the Superin- 
tendent, has charge of all goods received by the factory ; 
Receipts-Labor ^® ™^^* unpack goods, make proper pres- 
and ervation of packing materials and lumber 

Authority £qj, future use, check over entire receipt 

in detail, and hand memorandum of receipt to Superin- 
tendent. The latter immediately forwards them to the 
main oflSce for checking against the original purchase 
of invoice accompanying them. 

Immediately upon the completion of the unpacking 
and checking over all goods, they must be delivered to 
the Chief Stores Clerk with name of consignee, date of 
receipt and point of shipment attached. They then pass 
to the charge of the Chief Stores Clerk. 

Under no circumstance is the consignors' invoice 
to be given to the Receiving Clerk to check from, as this 
too often leads to check marks on the invoice without 
a count of the goods. 

His memorandum of receipt contains an account of 
all items and statements, and must be compared with 
consignor's invoice in the main office entirely independ- 
ent of the Receiving Clerk. This method insures abso- 
lute certainty regarding the correctness of the amount 
and quality of the goods received. 

Chief Stores Clerk, under the direction of the 
Superintendent, has full charge and authority in the 
Factory Stores factory stores, which are classified under 
-Labor and three divisions : finished, semi-finished, 
Autbonty ^j^^ rough stores. The chief of these de- 

partments is responsible for all stores and supplies of 



52 ORGANIZING A FACTORY 

finished, semi- and unfinished product. He has charge 
of all assistants and storesroom clerks, and must 
render all receipts to the office for the entire intake and 
output of the factory materials and supplies. All 
requisitions for supplies must be made by the Chief 
Clerk to the Superintendent, and must in each instance 
be accompanied by an inventory of goods on hand at 
the time of requisition. 

The Chief Stores Clerk has under him all stock 
clerks, stores clerk and inventory clerks, and has 
charge of all finished stocks, such as completed ma- 
chines or parts of machines that can be used and ship- 
ped for repair work, which themselves constitute a fin- 
ished product, until required in the assembly room. In 
other words, there should be two divisions in the stores 
room department of material: rough stores, constitut- 
ing raw material which is used to produce finished 
stores as made by the factory; and finished stores, 
which constitute all work done by the factory after 
completion, and all purchases of supplies or parts 
which are ready for assembling or filling of orders with- 
out the requirements of labor in the factory. 

The Chief Stores Clerk is solely responsible for the 
maintenance of a perpetual stores inventory system, and 
for the keeping it posted up to date. Immediately upon 
receipt of goods, the items must be posted on cards 
covering such items, before goods are placed in storage 
position. 

All job tickets for work must be made out by Chief 
Stores Clerk from each bill of material received and 
sent to the Superintendent with his requisition for 
parts required. The tickets are then given by the Super- 
intendent to the foremen of the various departments, 



O. E. WOODS 53 

who distribute them to the men in their departments 
whom they desire to do the particular operations. 

Shipping Clerk, under the direction of the Superin- 
tendent, has charge of all shipments made by factory, 
SMpping-Labor ^^^ ^® responsible for the direct acquisi- 
and tion of all data relative to means of trans- 

Authority portation by wagon, car or boat. He is re- 

sponsible for all material used for packing purposes and 
making of shipments, and must render requisitions for 
them to the Superintendent. He cannot receive them 
from stores supplies until audited as above. 

He is held responsible for all errors in shipment 
and for all delays after goods have been delivered to 
his department. All shipments made must be in ac- 
cordance with written instructions and requisitions, 
and must be correctly written on shipping clerk's mem- 
orandum. The Shipping Clerk has no authority out- 
side of this department. He must make all requisitions 
for additional help, when insufficient help is in the de- 
partment, directly through the Superintendent. He 
cannot take men through any of the foremen. 

No shipment can be made until final orders from 
the Business or General Manager are received by the 
Superintendent after shipment is ready; in actual prac- 
tice this means that the main office must be notified of 
completion of an order ready for shipment and return 
final shipping orders before actual shipment is made of 
any goods. 

The original productive order marked "shipping'^ 
must remain in force until a complete shipment of all 
the items contained thereon has been made. When 
goods covered by one order are shipped on installments, 
memorandum of shipments bearing the order number 



54 ORGANIZING A FACTORY 

must be made out to notify the main office, until the 
last shipment, when the original order must accompany 
the memorandum. 

Foreman, under charge of Superintendent, is re- 
sponsible for all machines, dies, jigs, and any special 
Tool Room- tools classed as tool room property. He 
Labor has all the labor in this room directly 

and Authority un(jer his charge, and is responsible for 
all materials received from Company's stores for use in 
this department. 

This department is an exception to all other de- 
partments, inasmuch as work is arranged between fore- 
men of all other departments and this one, but can be 
arranged by the Superintendent so that all requisitions 
issued by such departments will be honored by it with- 
out his audit. This arrangement lies entirely in the 
hands of the Superintendent. All timekeeping of this 
department comes under the head of General Time- 
keeper ; but it must be kept entirely separate from other 
work so that all work done in the tool room may be 
charged to the department for which it was done, or to 
a productive charge when items are made for sale. 

The Foreman of tool room must understand that 
his department is for the benefit and necessities of all 
other departments, but not under them, and that each 
requisition must have attention in its order of issue 
and receipt as near as possible. He must exercise great 
care to see that each piece and each operation on each 
piece is properly headed on the workman's job ticket, so 
that a proper distribution of expense may be made from 
these tickets. 

All jigs, dies and special tools made for the use of 
the factory are a subject of general expense, and must 
be charged to it — not, as is often done, to plant better- 



C. E. WOODS 55 

ment, or equipment increase, for such items have abso- 
lutely no market value and are worthless beyond the 
direct application for which they were designed, which 
makes them liable to become obsolete any time. The 
distribution of such expense is made to cover such a 
period of time as work will be manufactured from any 
special jigs or dies. If for a single job, that job must 
bear the entire expense ; if for parts of a regular prod- 
uct, the expense should be distributed over such a 
period of time as will correspond to their life, or until 
the manufacture of the part is discontinued and they 
become obsolete. The usual method is to charge 50^ of 
the cost of the first year, 25^ the second and 25^ the 
third year. 

All separate departments are under a Foreman, 
who is under the Superintendent. The foremen are 
Departments- responsible for all the Company's tools 
Labor and machinery in their departments, for 

and Authority ^jj ^^^^^ employed, and for all materials 
taken from stores. They have a certain amount of au- 
thority over requisitions for making tools, as required 
by them for their departments; but the tool room must 
not be considered as any one of theirs exclusively, but 
as being for the benefit of the entire shop. 

It is each Foreman's duty to see that his men and 
tools are provided with work ; idleness of tools will be 
no more excused than will idleness of men, when there 
are any orders that these tools can be worked upon. 
Therefore, it is one of his most important duties to lay 
out and arrange the distribution of his work in such a 
manner that there will be no idleness of either men or 
tools, and he will be held solely responsible for this 
feature. It is his duty to further see that this depart- 
ment is kept clean and orderly, and under no circum- 



56 ORGANIZING A FACTORY 

stances to allow a congestion on the floor of material 
or partly finished work. 

All time slips of any nature whatsoever must be 
checked by foremen before work is passed into in- 
spectors' hands. All numbers governing work must be 
placed on time slips when they are issued to workmen 
with his part of the work ; it is the Foreman's duty to 
place the clock or check number on each man's cost time 
slip and distribute them when received from Superin- 
tendent. 

All requisitions for workmen must be made on the 
Superintendent, as no Foreman will be allowed to hire 
his own men. 



0. E. WOODS 



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ORGANIZING A FACTORY 





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CHAPTER lY 

THE ACCOUNTING OF EXPENSES AND COSTS 

I do not propose to lay out or provide here for a 
complete accounting system, but rather to show the de- 
pendence of accounting on organization, the insepar- 
ableness of the two and the foundations upon which 
factory accounting must be built together with the prin- 
ciple involved in the gathering of costs, and to further 
show how independent of hooJckeeping in its general 
sense, cost accounting really is. 

The first consideration in the organization of an ac- 
counting department is a prime division of costs; the 
second consideration is their relative position in and 
distribution over the business as a whole. 

In the broadest sense, expenditures have but three 
prime divisions, which are clearly illustrated in Figure 
IV. As here indicated, they consist of General Ex- 
pense, Labor Expense and Material Expense, the sum 
of which gives, as shown, the Total Cost to Make and 
Sell. 

General Expense, in the broadest sense, means all 
expenditures that cannot be directly charged to cost of 
production. 

Labor Expense means the cost of any and all labor 
employed in a business excepting its administrative 
labor. 

Material Expense, in this division, is any form of 
material that is purchased by a company either for 
processing into a product for sale, or as supplies for 
operating a plant, or as office supplies. 

61 



€2 ORGANIZING A FACTORY 

In other words, these three divisions of expenditure 
are the least number to which the expenses of a busi- 
ness can be reduced, but, as a prime, each of them is 
subject to many subdivisions as may be required to 
cover an itemized classification for any particular busi- 
ness. 

Referring to Figure IV, it will be noticed that 
these three primes flow into two separate channels — 
one. Commercial Expense; the other. Manufacturing 
Expense — and that these two avenues of expenditure 
then join in a final summary of "Cost to Make and 
Sell." 

It is pertinent to emphasize here the necessity of 
a complete separation between commercial and manu- 
commercial and facturing expense. It is absolutely neces- 
Manufacturing sary to know, first, what it costs to pro> 
Expenses ^uce goods ready for sale, and, second, 

what it costs to sell them ; because a works manager or 
superintendent may manufacture goods at a cost of 
production in every way favorable for most successful 
competition, yet the business may be a dividend-making 
failure because of excessive expenditures required for 
marketing the goods. The latter is a condition for 
which the factory or manufacturing authorities would 
in no way be responsible. 

This is a point which the writer advises every 
manufacturing institution to give most careful con- 
sideration ; it often may mean much more than at first 
would be apparent. In the first place, it places respon- 
sibilities for two entirely different functions in a busi- 
ness directly where they belong; in the second place, 
the administration required for these two elements is 
broadly different in its nature; in the third place, the 
cost of making goods in a manufacturing business 



0. E. WOODS 63 

should be separated from selling expense and profits 
by as sharp a dividing line as is the purchase price of 
goods in a mercantile business. And in the fourth place 
the manufacturing end of the business should be al- 
lowed to participate in the actual making of profits, 
which should be termed the manufacturing profit ; that 
is to say, if it costs |50.00 to manufacture a unit it 
should be charged to the Sales Department at, say 
$55.00, the credits for all profits above that to belong 
to the Sales Department, and the credit for all profits 
under that to belong to the Manufacturing Department. 
The desirability of this is obvious. In the first place 
Where to ^^ establishes the strongest kind of an 

Charge incentive for a superintendent or works 

Expenses manager to reduce his costs and so in- 

crease his showing of profits. In the second place it 
makes prohibitive the cutting of prices by the Sales 
Department below a point at which there is no profit, 
and establishes for the Sales Department a standard 
price from which to work, so that they will never under- 
take the sale of goods unknowingly as regards costs; 
in other words, it establishes a sort of competition in 
the making of profits between the manufacturing and 
sales departments, each of which has a common basis 
to work from. 

The prime divisions of costs, as shown by Figure 
IV, are the foundation upon which any accounting sys- 
tem must be built ; and it is the care and consideration 
in making a distribution of the subdivisions of these 
primes that furnishes information by which a business 
is made successful of otherwise. And in this distribu- 
tion is probably one of the most troublesome and least 
satisfactorily understood questions in connection with 
a manufacturing business. The proper organization 



64 ORGANIZING A FACTORY 

and arrangement of this distribution is as much of a 
necessity as is departmental organization and arrange- 
ment, and, when done properly, must incorporate the 
physical organization of the factory as a part of its 
composition. One of the most satisfactory methods of 
reaching this end is that devised by the writer, as ex- 
hibited in Figure V, which he has always made his 
second step in the work of factory organization and 
cost accounting. 

It is impossible to give on a sheet the size of this 
book a perfect representation of how this distribu- 
Division ^^^^ ^^ made, but Figure V conveys in a 

of manner suflSciently clear the idea of the 

^°^*^ operation of this system. 

There is, in this two-page chart, one complete sec- 
tion, "A," Labor, and the three heads, "B," Material, 
''C," General Expense, and "D," Plant Betterments, 
constituting a continuous sheet, which gives the three 
primes, "A," "B" and "C," with a certain number of 
subdivisions, which, as before stated, constitute the en- 
tire expense of a business. 

But there is a further expenditure always, as indi- 
cated by "D," Plant Betterments. This is an expendi- 
ture which is not an expense, inasmuch as every outlay 
made for such items as are indicated brings an asset 
to the company. Consequently it is an investment and 
not an expense. 

Of Labor, it is necessary to know two quantities as 
related to the prime — first, that labor which is nonpro- 
ductive; second, that which is productive. The writer 
has found so much misconception of these two terms 
that a brief explanation will not be out of place here. 

Productive Labor, sometimes called Direct Labor, 
is that labor employed in a plant, whose efforts are 



C. E. WOODS 65 

directed solely to processing material into a product 
for sale. 

Nonproductive or Indirect Labor is that labor 
which is employed in a plant, whose efforts are not ap- 
plied to the processing of material into a product for 
sale. 

This division should be strictly lived up to for the 
reason that the opportunity for lessening costs on a 
Productive and ^^^^^ Output and equipment lies alto- 
Non-Productive gether in the nonproductive labor. To pro- 
^*^^ duce a given output requires exactly so 

much productive labor, and this cannot be varied ex- 
cept by a very small percentage. The amount of non- 
productive labor employed on a given output and equip- 
ment is, to a great extent, a question of administration, 
and consequently is subject to a much greater percent- 
age of variation than is productive labor. 

In the large sheets used by the writer for Expense 
Distribution, of which Section "A," Figure V, is an 
illustration, is made an exhibit of all the information 
required about a business, so far as expenditures and 
their distribution go. 

First, labor is divided into productive and nonpro- 
ductive, while under these two subheadings is arranged 
the classification of labor, as shown by Department 
Heads, Assistant Heads, Clerks, and so on; Nonpro- 
ductive, Foremen ; Pieceworkers and Day Workers, Pro- 
ductive. Of course, in actual practice, this classifica- 
tion must be arranged to meet the requirements of any 
particular business. The nonproductive foremen might 
come under "Department Heads" or "Assistant Heads," 
but as in nearly all factories there are some productive 
foremen, space should be provided for them. 

It should now be noticed that the arrangement of 



66 ORGANIZING A FACTORY 

the departments is exactly in confirmation of Organiza- 
tion Chart, shown in Figure II, in the preceding chap- 
ter, showing by groups here as well as there just what 
indicatinff departments belong to manufacturing ex- 

Actual pense, divided into productive and non- 

Expenses productive departments of a factory, and 

also just what departments are chargeable to selling 
expense. 

This method of distribution then shows just what 
the expense of each one of these departments is as re- 
gards authorities, clerks, and other workers, as well as 
common labor; hence any change in the organization, 
either by increase, decrease or abandonment, exhibits 
itself in the next succeeding report, as do also any 
changes in the number of men employed. In otiier 
words, this method of distribution always keeps the 
organization alive and subject to consideration, atten- 
tion and care. 

This method of distribution goes yet further. In 
addition to showing the exact expense of any class of 
labor employed in any one department, it gives a total 
of the nonproductive labor, as well as a grand total of 
both, for each department, bringing all of the organiza- 
tion heads or authorities into one column, day workers 
and pieceworkers into their respective columns, so that 
the footings are — first, the totals, and then the grand 
total for any individual department; second, the total 
for any class; third, the grand totals, both in vertical 
and horizontal columns, the latter two making a cross- 
checking system, which summarizes into the same set 
of figures in the lower right-hand corner. 

This system gives the total nonproductive labor, 
the total productive labor, and again the total nonpro- 
ductive and productive department expenditures in a 



C. E. WOODS 67 

factory, and then the total commercial or selling ex- 
pense. All of these data are presented on one sheet. 
Classification ^^ other words, this sheet makes a com- 
of plete classification, distribution and re- 

" capitulation of all the labor employed in a 

factory, for whatever time period it may be necessary 
to make an exhibit of. 

But this is not all. The classification under "Pro- 
ductive" and "Nonproductive," designated in the bot- 
tom horizontal line as "A-1," "A-2," "A-3," and so on, 
are the charge account numbers. That is, they show the 
classification and the charge accounts for the regular 
ledger entries, and are made up as follows: Any de- 
partment number, in combination with any classifica- 
tion number, constitutes a charge account ; i. e., "4 — A- 
3" would be all clerks employed in the cost accounting 
department; "3 — A-3," all clerks in the superintend- 
ent's oflSce ; while "8 — A-6" would be all foremen in the 
wood shop ; or "8 — A-7," all pieceworkers in the wood 
shop ; or "8 — A-8," all the day workers in the same de- 
partment. And so on, for any department or class of 
labor that it is desired to separate into charge accounts. 
The plan of distributing labor, devised by the writer, 
has given more satisfaction to accountants in general 
than anything of a similar nature that has been adopted 
in years, and is proving of inestimable value to the ex- 
ecutive ends of a business. 

The writer has, however, carried this method of 
distribution much further than a mere application to 
labor, as shown briefly by "B," Material, "C," General 
Expense, "D," Plant Betterments. "B" is separated 
into Processing Material, i. e., any kind of material 
bought, which can be processed. This is again subdi- 
vided into Product Material, i. e., any kind of material 



68 ORGANIZING A FACTORY 

bought with which to manufacture product for sale; 
Equipment Material, i. e., any kind of material bought 
for the purpose of making tools or machinery for the 
factory, as made by itself; Construction Material, i. e., 
any kind of material bought for building or real estate 
improvements. "B" is again divided into Office Sup- 
plies, as indicated by subheads under this ; Office Equip- 
ment, meaning furniture, fixtures, and other articles; 

Distribution ^^^ ^^^^ ^^^^° ^^^^ factory supplies, 
of meaning waste, oils, fuels, small tools, or 

Expenses ^^^ other items which would belong to 

such classification. 

" 'C,' General Expense," has exactly the same ar- 
rangement, a general list of items being used to make 
the exhibit, giving a total for general expense and then 
a summary total for "A," "B," and "C," so that on a 
working chart each department will have a distribution 
made to it of all the items indicated in these three sec- 
tions. Each department is charged with whatever be- 
longs to it in the distribution. It should be borne in 
mind that the labor in "C-9," however, and the material 
in '^C-IO" must be deducted from "A-5" and "B-2" or 
"B-3," as the case may be, when making distribution of 
"C" over cost of production. Otherwise, these items 
would appear twice. 

This last caution also applies to shop-made plant 
betterments, as whatever expenditures are made by a 
plant on itself for betterments must go as a credit 
against any expenditures made under "A," "B," and a 
pro rata amount of "C." 

This brings up a point on which many manufac- 
turers seem to be at a loss, and that is that any self- 
made plant betterment such as, for instance, the mak- 
ing of a machine or tool by a factory for its own use^ 



C. E. WOODS 69 

should be a matter of capital stock, that is, the depart- 
ment making such a tool should be credited with so 
much output, in which case the factory has become its 
own purchaser instead of making an output for outside 
sale. In other words, instead of placing a contract for 
betterments with outside contractors, they would have 
contracted with themselves and the credit should be 
carried accordingly. First, the factory should be 
credited with so much output; second, the purchase 
should be charged to capital stock as an investment 
the same as though it were purchased outside. I have 
in so many instances seen work of this nature charged 
up erroneously to general expense that I have thought 
it opportune to emphasize the facts as they should be 
on this point. 



OHAPTEE Y 

ANALYSIS OF DIFFERENT METHODS OF PAY- 
ING LABOR 

The absolute necessity of a Cost System for ascer- 
taining the cost of producing goods in any factory, 
and the necessity of dividing these costs into the cost 
of labor, cost of material, general factory expense and 
general office expense, has become a fact too well estab- 
lished to need comment here. It is an element that con- 
tributes more to the success of any manufacturing 
business than any one other outside of the administra- 
tion itself, and should have every consideration at the 
hands of any manager who wishes to be successful. 

So called Cost Systems are almost as numerous as 
factories, most of which have been installed without 
any idea as to the prime principles which cover the col- 
lection, tabulation and retention of costs, and it is 
pertinent to review here in brief the various principles 
available, in such a way as to show the strength or 
weakness of each individually, and thus obtain a 
I^remise for the compilation to follow. 

There are many ways by which the costs of pro- 
duction may be made to make themselves manifest. 
Day labor is, of course, the oldest method from which 
costs are computed, and one which makes the labor cost 
jjg^ of a product dependent entirely on the 

Labor and honesty and skill of the workman. Its 

^°^*^ weakness lies in the fact that a manufac- 

turer has no established labor cost on the product 
which can be maintained, as it is subject to a constant 

70 



C. E. WOODS 71 

variation in accordance with the honesty and skill of 
the labor he employs. 

The whole question of cost on production has 
largely grown out of dissatisfaction with this method 
of paying labor, and the desire for some means which 
would establish the labor cost at a permanent point, 
and at the same time stimulate the labor employed to 
an increased effort. For many years this has been 
covered by what is known as the "Piece Work System," 
one that does not reduce the wage cost per piece of out- 
put, but does increase the amount of product manu- 
factured with a given amount of labor and manufac- 
turing equipment. 

The governing feature in the piece-work system is 
a good and proportionate reward to labor for increased 
effort on its part, and a corresponding penalty if this 
effort is not made, in the shape of a proportionately 
smaller wage. It established also a fixed price on the 
labor cost of work, making the estimated cost exactly 
what the actual cost will ultimately be. The weakness 
of the piece-work system lies in the fact that invariably 
the time comes, no matter how the price rate may have 
been computed, when the wage earned is too high for 
the labor employed, and rate cutting becomes neces- 
sary; which in itself introduces a third penalty of an 
p. inverse nature, and one which is some- 

Work what disastrous, and which,'' broadly 

System speaking, makes the piece-work system 

carry a penalty for doing poorly — in the small amount 
of wage earned — and for doing overly well — when too 
large a wage is earned — ^the rate-cutting made neces- 
sary in the latter case resulting in the partial or whole 
cessation of further speed effort on the part of the em- 
ploye, which in turn affects equipment speed, and cost 



72 ORGANIZING A FACTORY 

proportionately, thus in a way defeating one of the 
objects which it was desired to accomplish. The above 
are the prime facts for consideration in the piece-work 
system, and it is believed cover the situation exactly as 
it is, without prejudice for or against it, and are facts 
which should have most careful consideration on the 
part of any manager, either when he is about to estab- 
lish a piece-work price, or when he is about to resort to 
rate-cutting. To quote Mr. Halsey on piece-work will 
best bring out some facts as given in a lecture by him, 
Feb. 7, 1902, in which he says : — 

"No man knows what he can do under an incentive 
until he has tried it. The workman in saying that he 
cannot 'make wages' at the piece prices offered when 
piece-work is first introduced, is entirely sincere but he 
is nevertheless mistaken. All experience shows that 
when the test comes the increase of output under the 
incentive of piece rates is far beyond what anyone — 
manager or workman — would have believed possible. 
The output mounts up and the wages with it, and the 
employer soon finds that he is paying an extravagant 
rate of daily wages — an extravagant rate being under- 
stood as a rate materially in excess of what it would be 
necessary to pay another workman for doing the same 
work, he having the first man's experience before him. 
The employer submits to this for a time but the wages 
continue to increase and ultimately he is driven to his 
only recourse — he cuts the piece price. This is an im- 
mediate announcement to the workman that the prom- 
ises of piece-work are false. He was told that he would 
be paid a certain rate per piece, but he finds that to be 
true up to a certain limit only. The workman, again 
under compulsion, accepts the new price, but unless he 
is very dull, he has learned a lesson. If he is very dull 



C. E. WOODS 73 

it may require a second cut to enforce this lesson, and 
this second cut, either on the price of his own work or 
on that of some fellow-workman, is soon forthcoming. 
The lesson is that if he pushes his production to a point 
which raises his earnings beyond a certain more or less 
clearly defined limit the direct result will be a cut in 
the piece price. Perhaps new men come in or the old 
ones are given new work to do — the result is the same. 
If any one is so unwise or so unfortunate as to do a 
large amount of work he is at once punished for it by 
having his rate cut. Such cuts from the workman's 
standpoint have one result — he is compelled to work 
harder than before but he earns no more." 

In theory, the facts stated above are all, to a 
greater or lesser degree, true, but in practice such ex- 
j. .J. treme conditions are found only when, 

Adoption of first, due study and consideration have 
Piece Work ^^^ ^^^^ given to setting of piece rate in 
the first place; second, where the management is inex- 
perienced in handling the piece-work system; third, in 
an old factory where a new work is being developed and 
a piece rate is set before a sufficient accumulation of 
experience has been collected from which to determine 
a piece rate. In factories experienced in handling of 
piece-work it has been found not always advisable to 
make the desired cut all at one time but to make it mod- 
erate, step by step, until it has been reduced to the nec- 
essary point. In this way, confliction with, or dissatis- 
faction on the part of labor never exists to any such 
degree as Mr. Halsey suggests. But when, farther on, 
he says : — 

"The workman, of course, looks upon these cuts as 
an exhibition of pure hoggishness on the part of the 
employer. While the employer may take undue ad- 



74 ORGANIZING A FACTORY 

vantage in this way, the fact remains that if he does 
not make the cuts he will eventually do it from neces- 
sity, for it can be shown that these cuts are an integral 
part of the piece-work plan, which can no more be 
operated without them than a wind-mill can be oper- 
ated without wind, and for the reason that as the years 
go by, the whole tendency of prices is downward. There 
are, of course, periods of advancing prices, but they are 
short-lived, and are nothing but the incoming waves of 
the receding tide. The tendency through a series of 
years is downward and this must be so. It may also 
be said that this is what industrial civilization is for — 
to make things cheaper. The whole industrial world is 
engaged in a ceaseless effort to reduce costs in order to 
reduce prices, and with so much effort it would be 
strange if there was not some success. With this 
future of falling prices before him no manufacturer can 
contemplate paying the same piece rates ten years 
hence that he does today. In normal times most manu- 
facturing enterprises are conducted on a small margin 
of profit, and with a future of falling prices before him, 
no manufacturer can continue to pay materially more 
per piece for his work than his competitors pay. The 
simple fact is that uncut piece rates lead to rates of 
wages which, under the conditions of competition 
between manufacturers, cannot be maintained." 

He strikes the true philosophy of the relation be- 
tween output and labor, for it is a fact that the tend- 
jj .. ency of everything manufactured is to- 

of ward a reduction in cost, but his argu- 

Keduction ment must apply to any method of paying 

labor. The accumulation of experience on the part of 
labor and the introduction of new methods of tooling, 
handling, etc., from time to time, are bound to increase 



C. E. WOODS 7& 

the output per capita of any plant in existence, while 
the maximum wages per capita can never exceed some 
certain or established limit. Therefore, in day-work, 
piece-work, or the premium plan of paying labor, the 
ultimate issue of any product must be a reduction in 
the cost of labor to produce it. 

We now have to consider a proposition which has 
been under considerable discussion and one that seems 
to have both its advocates and enemies, and which is 
known as the ''Premium Plan" for paying labor ; a plan 
that would seem to have in it the true economics of 
manufacture, as it embraces the following points: the 
lowest possible wage per unit of production ; incentive 
for the labor to maintain the highest equipment output ; 
any increase of wage decreasing unit cost 'both in toage 
and equipment cost. 

In piece-work we have seen that the wage price per 
piece is constant and unvarying, except when rate-cut- 
^j^g ting is resorted to. In other words, the 

Premium workman receives the full benefit of the 

^^*° increased output on the wage side of cost 

which he usually sacrifices through over-zealousness in 
the form of a cut. 

Any employer can afford to increase the wage of 
his employes provided a proportionate increase in out- 
put is secured, and if in connection with increased out- 
put and an increased wage paid for labor, the cost per 
piece for both labor and equipment is at the system for 
paying labor that would be thoroughly practical and 
desirable in every way, and this is exactly what the 
Premium Plan purports to accomplish. The higher the 
wage paid, the less the cost per piece for both wage and 
equipment. - 

This is obtained by setting a time limit on a piece 



76 ORGANIZING A FACTORY 

of work which shall be from a day pay basis, and a 
division made between employer and employe of any 
wage saved by the lessening of the time limit on any 
given piece of work. Under this plan, there is no pos- 
sibility of rate cutting taking place, except by mutual 
adjustment between the employer and the employe due 
to some new method of procedure in manufacture, and 
j^g its only weakness would seem to be in the 

One fact that the system is one that offers re- 

Weakness wards for increased effort on the part of 

the employe, without subjecting him to any penalty 
for not making increased effort, inasmuch as the time 
limit is practically a guarantee for a certain day's 
wage, but this in itself has one virtue, as it leads to less 
contention among the employers in the installation of 
a cost system. Mr. Halsey's own illustration exempli- 
fies the plan very nicely. 

"To gather the exact workings of the plan, assume 
a concrete case. A workman is paid (say) |3.00 per 
day and produces one piece of a kind per day — that is 
in 10 hours. He is told that he will continue to be paid 
his 13.00 a day as before but that if he will reduce the 
time on the piece he will be paid in addition to his 
wages a premium of ten cents for each hour saved. If 
he reduces the time by an hour that hour represents in 
money value a gross saving of thirty cents. Ten cents 
of this amount is paid to him as a premium, leaving 
the remaining twenty cents in the employer's possession 
— this sum making itself manifest in the reduced cost 
of the work. If the workman goes on reducing the time 
in which the piece is made, the same process is repeated, 
each hour saved resulting in an increase in the work- 
man's wages of ten cents and in a reduced cost of 
twenty cents. In other words, the wages go up and the 



C. E. WOODS 



77 



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78 



ORGANIZING A FACTORY 



MONTHLY TIME RE 



FACTORY 


NO.. 




L. T = 


LOST 








DISTRIBUTION OF JOB 


1" 

EMPLOYES 

NAME 

AND CLOCK OR 

CHECK NO. 


H 
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z 


1ST. 


2ND. 


3RD. 


4- TH. 


5 TH. 








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Figure XIII. From serving for the monthly record 



FACTORY N0._ 



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REGUL* 


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T. 


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MONTHLY TIME RECORD 
DISTRIBUTION OF JOB" 



MACHINE 
NAME AND 
NUMBER 


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2ND. 


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0. E. WOODS 



79 



CORD OF LABOR. 
NUMBERS & EXPENSE. 



R. T.- REGULAR TIME ON DAY WORK. 
0, T. — OVERTIME ON DAY WORK. 



MONTH ENDING.- 




of Time Labor and Non-productive cost on any job 



OF MACHINE TOOLS. 
NUMBERS & EXPENSE. 



VIE PER MONTH FOR MACHINE 



MONTH ENDING roR^ ~o 




monthly record of Machine Tools 



80 ORGANIZING A FACTORY 



" , PORM NO,. 10. ^ 

DALLY DEPT 



Piecework Check 

ON COST SLIP NO. SHOP ORDER NO. MODEL NO. 



WORKMANS NAME CLOCK OR CHECK NO- 



MACHINE TOOLS NAME NO. TO EXPENSE CHARGE 



NO. RECEIVED NO. REJECTED NO. RETURNED 



NO. AC CE PTE D , _^ INSPECTOR. 

A.M. IN OUT P. M, IN OUT TOTAu HOURS 



PiGUREjXV. DailyJPieceiWork Check 













FORM NO 


TlSf 


DATE 








DArLY 


' DEPT. 












DayWork check 








ON COST 


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SHOP ORDER NO- 


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NAME 




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TIME KEE 


PER. 





Figure XVI. Daily Day Work Check 



C. E. WOODS 



81 



costs go down simultaneously, to increase the wages of 
the latter, and the remainder going to reduce the cost 
to the former. This is shown in the accompanying 
table, which, for purpose of illustration, is extended 
until the workman has doubled his output, in which 
case the (wages) cost of the work has gone down from 
^3.00 to |2.00 while the workman's earnings per day 
have advanced from |3.00 to $4.00. 

THE WORKINGS OP THE PREMIUM PLAN. 



1 


2 


3 


4 


5 


Time 

consumed, 

hours. 


Wages 

per piece, 

dollars. 


Premium, 
dollars. 


Total cost of 

work = col. 

2 -J- col. 3, 

dollars. 


Workman's earn- 
ings per hr. = col. 
4 -i- col. 1, 
dollars. 


10 
9 
8 
7 
6 
5 


3.oe 

2.70 
2.40 
2.10 
1.80 
1.50 


0. 
.10 
.20 
.30 
.40 
.50 


3. 

2.89 
2.60 
2.40 
2.20 
2.00 


.30 

.311 

.325 

.343 

.366 

.40 



"There is, of course, a considerable gain to the em-' 
ployer due to the increased production from a given 
plant, since the secondary costs of production — the ex- 
pense items which make up the burden and which must 
be added to the cost of labor and material in order to 
obtain the ultimate true cost — are increased but little 
in consequence of the intensified production." 

One thing is obvious, and that is, that every possi- 
ble consideration and study must be given to the estab- 
lishing of the time limit, as it must not be too low or 
too high. If a man can do a certain piece of work in 
four hours, and the records of a factory for quite a 
period of time show this to be a fact, a time limit not 



82 ORGANIZING A FACTORY 

greater than two and one-half or three hours should be 
established, and any time over be divided between the 
employer and the employe on such basis as found de- 
sirable, though usually it has been found 
Time most satisfactory to make the division an 

I'lmit g^gjj Qjjg. jj^jf ^jjg saving going to each^ 

the employer getting the greater benefit of the two by 
the reduced equipment cost per piece. 

Comparatively speaking, wage by piece-work ex- 
ceeding a certain limit must be cut by the employer to 
preserve equilibrium, the moral effect of which is to kill 
any further alertness on the part of the employes to 
maintain or increase speed of production, and as before 
stated, carried with it two contrary acting penalties. 

While the Premium System may not be as direct in 
its intensification of production as the piece-work sys- 
tem, it certainly seems more permanent in its effect; 
much more equitable in its distribution of cost saving 
as between employer and employe; and further it 
seems to be governed by true economical principles in 
manufacture, and is now employed in many of the fac- 
tories of the largest industries of the country. 

Another system that has had considerable atten- 
tion, is known as the ''Differential Piece Rate System/' 
in which the piece price starts off at a comparatively 
Differential ^^^ figure. That is to say, for a given 
Piece Bate amount of work per day the wage earned 
System ^^^ piece-work would be much less than 

would be paid if the laborer was working by the hour 
or day for the same amount of work — the purpose of 
which is two-fold. First, to stimulate activity toward 
increased effort on the part of the employe, and second, 
to attach a penalty for too great an effort on his part 
if the workmanship is inferior. The method is to set 



C. E. WOODS 83 

a price for the amount of work that is to be done in a 
specified time, exceeding which the price is raised per 
piece not only for the work done in excess of the limit 
set, but for the entire contract or number of pieces both 
under and over the limit. The result claimed for this 
by those who have tried the system is less immediately 
incentive on the part of labor to establish speed than 
in the direct system, while the penalty, if the workman- 
ship is inferior but passable, is greater, — as in this 
case the piece price is not raised though the amount of 
work done per day has exceeded the limit set. Good 
workmanship, however, results in high average pay to 
the labor, but without any reduction in wage cost per 
piece; the aim being the attainment of an extremely 
low equipment cost per piece by causing the labor to 
raise a large output in production. 

The weakness, if any, in this system, lies in the 
fact that absolute prior certainty must be arrived at re- 
garding the cost of production relative to labor and 
also ultimate machine capacity, as a mistake in this 
would result in the complete failure of the system — in 
one case discouraging the worker by having set an un- 
attainable limit, and on the other hand, by the setting 
of a too easily attained speed of production, necessita- 
ting rate cutting, or what amounts to the same thing, 
increasing the amount of work done in the same limit 
of time. 

This review of the various methods employed for 
setting a labor wage brings us face to face with a con- 
A New dition much to be desired, but which had 

Cost never been realized, until the writer solved 

ystem ^^^q question; and that is a cost system 

applicable to a wide range of products as made in differ- 
ent factories, or by different factories under correspond- 



84 OKGANIZING A FACTORY 

ing varying conditions ; also a cost system which would 
further have its blanks and forms so perfected as to be 
used on any and all of the methods above described for 
paying labor. 

Up to the present time, the introduction of the 
Premium Plan has been rather uncertain, owing to the 
lack of any prior uniformity in collecting costs from 
which to establish a time limit, which is one of the vital 
factors in the whole system. But in the present system 
an entirely new arrangement has been effected, the first 
of its kind by which these time limits can be established 
on a day pay basis, and afterwards piece-work or a 
premium plan introduced without in any way changing 
the system already in vogue or the blanks and forms 
used. As a matter of fact, this system is designed so 
that all of the blanks and forms can be used for either 
Time Limit on ^^^ "^^^^' piece- work, or premium plan of 
Day Pay paying labor ; an advance in cost keeping 

*"^ of unusual importance and inestimable 

value when one considers that in nearly every factory 
it is absolutely necessary to establish either piece-work 
or a premium plan on all or part of the items manufac- 
tured, and also that the nonproductive labor of the 
factory is always on a day pay basis. The value of the 
following system in carrying all classes and conditions 
of labor on the same forms and blanks making it pos- 
sible to change from one method of paying to another 
any time it may be found desirable or necessary to do 
so, will be fully appreciated by those who have had ex- 
perience in an endeavor to create a cost system that 
would be satisfactory in such respects and meet all the 
varying conditions mentioned. 



OHAPTEE YI 

DEPRECIATION OF TOOLS AND ITS RELATION 
TO COST 

Ask any foreman of any machine shop how he 
keeps track of the depreciation on machine tools and 
equipment. 

If he does not frankly admit that he has no accu- 
rate system of keeping such records, the chances are 
that he will answer boldy that he figures the annual de- 
preciation at "10 per cent." 

There is no good reason why 10 per cent should be 
accepted as a basis for figuring the depreciation other 
than that it is the figure that most manufacturers have 
arbitrarily accepted for years past. It is assumed that 
10 per cent is a fair estimate of the annual depreciation 
on machine tools. Accordingly "10 per cent" is the 
reply you will probably get to your inquiry from the 
foreman who feels that he must answer "something." 

One of the first points for consideration in arrang- 
ing the general organization of a factory, and especially 
its accounting systems, is the consideration that it will 
be given to depreciations. Notwithstanding the many 
differences of opinion on this point, it bears directly 
on the cost of production. Depreciation, especially on 
machine tools, is as much a part of the direct cost of 
production as are labor and material ordinarily called 
"flat" costs. 

I do not know of one single item that has been more 
confusing to managers and superintendents than this 
one. Many small factories do not write off any depre- 

85 



86 ORGANIZING A FACTORY 

elation whatever on their machine tool equipment, but 
Antiquated carry their initial values on their inven- 
Methods torles from year to year. Others write off 

Common ^ certain percentage each year, usually 

7% or 10 per cent. But this is obviously wrong, 
as there is certainly no equity in charging off a 
straight percentage for the entire equipment of machine 
tools in a shop when it is evident that some of these 
must be used greatly in excess of others and should 
have a corresponding depreciation charge. A lathe, 
for instance, used but one week in a month would have 
an actual life four times as long as one used every work- 
ing day, and this is a condition that prevails to a 
greater or less degree in every factory. Such a method 
writes off a specific sum without any regard to the 
actual amount of wear and tear on a machine and offers 
no way of figuring correctly the cost of production in 
any one department, when that department is making 
a complete product in itself. 

Machinery that is used directly in the manufacture 
of goods for sale should be considered in the same light 
as labor, inasmuch as a machine tool, as a productive 
factor, is nothing more or less than a substitute for 
hand labor, but, unlike such labor, is an asset of a com- 
pany, subject to interest on the investment required for 
it, and also to a depreciation charge in proportion to 
the amount that it is used per annum. 

To arrive at a proportionate and proper apprecia- 
tion charge of machine tools, a wage should be estab- 
A Waee lished for them that will enable them to 

for Machine pay for themselves in direct proportion to 
Tools their usage. To establish such a wage, the 

known or estimated life of a machine tool must first be 
given, which, broadly speaking, is as follows : 



C. E. WOODS 87 

High-speed machines, ten years. 

Medium-speed machines, fifteen years. 

Large and slow machines, twenty years. 

The years are assumed to be composed of 2,000 
hours each, which is about 166 hours a month, or an 
average of six and four-tenths hours a day of twenty- 
six working days a month. 

The above, in general, applies to power equipments, 
either steam or electrical, and a depreciation charge 
can be carried on them in the same way, if desired. 

On such a basis it becomes apparent at once that a 
machine tool is enabled to retire itself pro rata to the 
time worked without regard to actual years in service. 
To establish an hourly wage for any machine tool, we 
must take into consideration the amount of interest due 
on the investment itself, and distribute this in such a 
way that we may have a uniform hour rate for the entire 
period of time required, as the complication of setting 
a different hour rate for each year to correspond with 
reductions brought about by principal and interest 
credits is altogether undesirable. 

To illustrate this : If a machine costs |100 and we 
wish to retire it in one year, it would have to earn $106 
on a six per cent interest basis in 2,000 hours. If we 
wish to retire the same machine in two years, we would 
have |6 interest for the first year. The reduction of a 
$50 earning on the first year would leave |50 to be 
earned for the second year, on which there would be |3 
interest, the total amount to be earned on the machine 
being $109 for two years or $54.50 a year, which would 
amount to an hourly wage of .027 cent per hour. 

It is on this basis and for this purpose that the ac- 
companying depreciation tables have been computed by 
the writer. These tables are carried up to values of 



88 ORGANIZING A FACTORY 

$1,500 for twenty years, and, of course, any value in 
excess of this may easily be found by adding the proper 
amounts together. For instance, |2,000 should be twice 
the amount of |1,000 or $3,000 should be twice the 
amount of $1,500, and so on indefinitely. 

To find the amount to be earned annually for any 
given cost, or any number of years up to twenty, take 
jj^^ the figure representing the known cost in 

to the left-hand column, follow this line to 

Handle Tables ^^^ j^jgj^^ ^^^-j j^ intersects the required 

number of years, which figure will show the amount to 
be earned annually for that number of years, and in- 
cludes all interest at six per cent. 

Likewise in the table of wage an hour for machine 
tools, the intersecting point of years and amount indi- 
cate the wage to be earned hourly to earn the sum given 
in that number of years, based on 2,000 hours a year, in- 
cluding all interests. 

The foregoing explanation, it is believed, will clear 
up all doubt as to the fact that the creation of a fund 
for the replacement of machine tools which are subject 
to depreciation to the extent of their full value in a cer- 
tain given time is also as much a charge to cost of pro- 
duction where such tools are used directly on the pro- 
duction of goods for sale as is the labor employed to 
operate these tools. And like labor, it must be divided 
into both productive and nonproductive cost elements 
of a business. 

Expenses chargeable are derived from two factors : 

First, the depreciation of a tool itself in accord- 
ance with its life. 

Second, the upkeep of the tool, which consists of all 
the expense attached to its active elements of operation, 
1. e., the making of all cutters or cutting tools that are 



C. E. WOODS 89 

subject to daily and constant wear during the process 

of manufacture. 

A full complement of miscellaneous tools for each 

machine tool should be a living asset in the inventory, 

^ . ,. but no machine should ever be inventoried 

Derivation 

of Expenses for more than one complement of these 
Chargeable miscellaneous tools, as constant wear and 
tear on them is a subject of upkeep expense, as before 
stated. 

From this it is readily understood that the expense 
attached to the depreciation of a machine tool is charge- 
able to production cost in the same ratio that labor is 
when used in the manufacture of a product to be sold, 
and is chargeable to non-productive cost in the same 
ratio that labor is, when so used. Consequently all 
time slips used by the men should bear spaces in which 
may be recorded the time of the tool as well as the time 
of the man. It will also be seen that upkeep or main- 
tenance is chargeable to nonproductive or overhead 
costs exclusively, the gauge to all of which is the 
amount of time worked. 

There are other factors that are brought into life 
by this method of dealing with machine tools that are 
almost of as much value as the foregoing. By keeping 
time on machine tools in the way outlined, the records 
show not only where and how fast the fund for replac- 
ing tools is derived, but also show the exact age of the 
tool. A machine may have been in a factory five years, 
and yet be only three years old in service, or it may 
have been in the factory but three years and be four or 
five years old in service. Collectively, such a record 
from a factory shows at the end of each month how 
well the entire equipment of the factory has been em- 
ployed, and thus enables the manager to point out ex- 



90 ORGANIZING A FACTORY 

actly how work can be best distributed to make the 
jjgj^j investment earn the greatest possible reve- 

Ageof nue. In many instances it will prevent 

^ additional investment for new equipment 

by pointing out what portions of the equipment are 
most often idle. In a factory there is no more excuse 
for idle tools than there is for idle men, and many a 
manager, for lack of proper data regarding his equip- 
ment, has been forced into buying new machine tools 
when twenty-five per cent of those he had were idle. 

The method of keeping these records is very simple, 
and is explained very fully in sections covering the de- 
scription of record sheets. 

A vast amount of inquiry among various manu- 
facturers and users (the details of which will not be 
gone into here) has shown the foregoing tables of life 
for the active units used in a factory to be a safe guide 
to go by in considering depreciations. The amount of 
salvage to be obtained after the life of a unit has ex- 
pired can be relied upon as it is given here, but it must 
be understood that the percentage given is on the orig- 
inal cost and does not include any labor or material that 
may have been afterwards added. That is to say, all of 
the original cost, including countershafting, freight and 
installation, must be included, but not any changes that 
may afterward be made. 

Many will undoubtedly say after reading the above 
that they have many machine tools that are out of use 
more or less of the time which will make it difficult to 
apply such a method, but this is just exactly where the 
Uses of method is most needed, as it shows up 

Depreciation what and where and in what ratio the 
Tables equipment of the plant is being used. 

Others will bring up the argument that machine tools 



C. E. WOODS 91 

are often thrown out after having been in service a com- 
paratively short time for the reason that improved tools 
are bought to take their places and that this method of 
writing off depreciations can not be made to apply. 
This depends altogether on what disposition is made 
of the expense of the machine or tool discarded ; some 
manufacturers prefer to write it off in full and charge 
the loss direct to expense for current year. But obvi- 
ously this is not fair. If a tool has been in service three 
years, and is then thrown out because of imperfections, 
three years' depreciation should then be written for a 
credit to this machine. Then whatever it is sold for as 
junk or as a second-hand machine should be credited 
to it, and in case of a substitution, the balance charged 
to the cost of the new machine, as that is precisely what 
it has cost to put the new machine in the factory. This 
will then distribute the burden of this expense over the 
life of the new machine. Unless this method is adopted, 
the loss on the old machine must go to profit and loss. 
If for any reason the latter method is preferable, the 
expense of the new machine will be exactly what it cost 
and depreciated accordingly. 

There is another condition attached to this method 
of writing off depreciation of no inconsiderable value 
Tables Show besides depreciating a machine in propor- 
the Actual tion to its use. By using an hour wage 

^°^* the expense of depreciation is distributed 

in the only equitable way possible over the product 
made. Parts that require an expensive tool or much 
tool time thus have a perfect division of their pro rata 
share of this expense placed upon them, which figured 
down to individual operations often results in a change 
in price. 

Further, it is the only method for determining of 



92 ORGANIZING A FACTORY 

what actual value the machine has been, and what por- 
tion is a direct loss in case it is discarded and all writ- 
ten off at once. There are instances where managers 
have tried to consolidate with depreciations on tools 
other items of expense, such as power and repairs, and 
put the total into an hourly or daily wage basis. But 
this is obviously wrong, as it practically puts the whole 
charge of these items into a general expense fund, 
rather than a portion of it into a sinking fund for the 
renewal of machinery when it is worn out. The nature 
of this depreciation and of obtaining a fund for renew- 
als is so specific in its nature that it should not be con- 
founded with any other expense. 

In pro-rating the power of a factory over machine 
tools for the purpose of arriving at a charge an hour 
for such power, the whole matter should be the subject 
of a separate charge account. This should again be sub- 
divided into that portion actually used by each ma- 
chine as compared with all the power lost or absorbed 
in transmission devices. That is to say, the friction 
load of an engine of the power that it takes to run a 
factory when the machine tools are not operating 
should be pro-rated in the shape of a general charge 
rather than in the shape of power. 

But this is a subject foreign to this subject and will 
not be dwelt upon further in this chapter. 



OHAPTEE YII 

A COMPLETE ANALYSIS OF THE ELEMENTS OF 
A COST SYSTEM 

To devise and arrange a factory cost accounting 
system it is necessary to know just where to commence. 
And this knowledge is the result of a study of the gen- 
eral conditions in that particular plant under consider- 
ation. 

From this starting point can be formulated a com- 
prehensive chart or series of charts, that will give a 
complete anatomy by which to express a manufacturing 
business in its every detail. By these charts, also, we 
can dissect or diagnose every movement of the product 
manufactured and the authority that controls these 
movements from raw material to finished units — a fact 
which most cost accounting systems have completely 
ignored. 

To systematize and discipline a manufacturing 
plant, as well as its departmental organization, is al- 
most wholly within the province of cost accounting. As 
a matter of fact, there is no other instrument by which 
these necessities to a plant can be reached successfully. 
The great error in most systems has been in trying to 
make a cost system fit already existing conditions too 
closely. This always results in fragmentary work and 
results. To be successful, a factory cost accounting 
system must be a unit as complete in itself as is a unit 
covered by either some mechanical or governmental 
expression, for it pertains to both elements. 

The first chart required, as the skeleton for our 
93 



94 ORGANIZING A FACTORY 

physical expression, draws all of the various depart- 
Analysisto ments in a plant, as is illustrated in Fig- 
Secure the ure II. But to arrive at this in a proper 

Skeleton way, the product manufactured must be 

analyzed. This analysis must show: — 

First, the units as a whole. 

Second, the parts of each unit, and 

Third, the operations on each part of each unit. 

For it is only by this that we can find out how to 
divide a plant into departments and then how to relate 
these departments one to another, so as to give the most 
progressive movement possible to the product manu- 
factured. 

Raw material at one end and finished product at 
the other is always the governing principle in factory 
organization, if cost for shop transportation and expe- 
ditious handling by productive labor is to be considered. 
Modifications to this are, of course, made in case large 
parts are made and shipped without assembling into 
a complete unit at a factory, or when parts are manu- 
factured and shipped without assembling at ail. In 
such cases the departments which make such a part can 
be considered as a plant in itself, and the part in its 
relation to such department or departments may be con- 
sidered a complete unit in itself. All of this, however, 
does not alter the classification and relation of the part 
to the business as a whole. 

Therefore, of a part we must know (Figure VI) : 
First, its name; second, its model number; third, its 
Facts Concern- ^^^ number ; fourth, its drawing number ; 
ing Each fifth, its pattern number ; sixth, its flask 

^"* number; seventh, its die or jig number 

(one or all as the case may be) ; and eighth, the number 
and description of all the operations required to make 



C. E. WOODS 95 

it a completed part, together with the kind and meas- 
ure of material used, and the number of individual 
parts required to make the completed unit for which it 
is designed. All of the different parts required for a 
completed unit should be classified under its model 
number. The necessity of this will become apparent 
when the method employed for collecting costs is ex- 
plained. 

With the above information in hand, it is not diffi- 
cult to study out the best and necessary departmental 
divisions for a progressive movement of the product to 
be manufactured. All important in this is the location 
of rough and finished stores ; each department and each 
location of stores should be numerically and alphabeti- 
cally arranged for classification and identification. 

The next step in the preparation of a cost account- 
ing system is the classification and numbering of all the 
Inventory machine tools and equipment, jigs, dies, 

of etc., and also all of the power units and 

Equipment equipment. For in this lies great value in 
connection with a perpetual inventory system, saving 
a vast amount of time each year, and at the same time 
giving correct value, minus depreciations. 

Therefore, of machine tools (Figure VII) and power 
equipment, we must know: First, name of machine; 
second, maker's serial number; third, size number; 
fourth, catalogue number ; fifth, from whom purchased ; 
sixth, date of purchase; seventh, original cost; eighth, 
freight and installation cost; ninth, total cost; tenth, 
estimated life; eleventh, present value, in all or part, 
as the case may be; and a list of all accessories that 
would form a live inventory, as this data not only has 
to do with what is known as the perpetual inventory, 
but also with costs of production. 



96 ORGANIZING A FACTORY 

The same applies to all patterns, jigs, dies, for pur- 
poses of perpetual inventory and classification. 

On patterns we must have (Figure VIII) ; First, 
name of pattern ; also description if necessary ; second, 
date made ; third, from drawing, number made ; fourth, 
for parts, number made; fifth, flask number; sixth, 
flask size; seventh, follow board; eighth, kind of ma- 
terial; ninth, cost of material; tenth, cost of labor; 
eleventh, tool cost; twelfth, overhead cost; thirteenth, 
total cost ; fourteenth, date and present value ; fifteenth, 
number of pattern. 

On dies, jigs and special tools (Figure IX), we 
must have : First, name, also description, if necessary ; 
second, number of itself; third, parts number; fourth, 
kind of material; fifth, cost of material; sixth, cost of 
labor ; seventh, tool cost ; eighth, total cost ; ninth, date 
and present value. 

If these items are all carried out as above, it not 
only gives a complete record of them, but makes a com- 
plete inventory for the life of any of the articles enumer- 
ated, as nothing remains to do each year but write off 
on the record cards depreciation in proportion to their 
life, except when they are thrown out and retired en- 
tirely by either abandonment or substitution. Thus 
this forms the first work to be done in preparing a fac- 
tory cost accounting system and what is known as a 
perpetual inventory system — although, literally speak- 
ing, the latter is a misnomer; but as this comes under 
record-keeping, we will not attempt to go into it here. 

The final form (Figure X) is self-explanatory, ex- 
cept, perhaps, it is necessary to observe that the back of 
the card is used for carrying inventory of valuations of 
these drawings from year to year, thus putting these 
items into the machine tool classification. 



C. E. WOODS 



97 









PARTS COST C 


ARD 


OR 




FORM NO. 12 


HEADINO NO. 

KIND OF MATERIA 


USED 


unnci NO. 








MACHINE TOOU. 








No. 




TIWE. 


RATE 


cost: ] 


TIME 


RATE, 


COST. 1 


1 




















2 




















■a 




















« 




















^6 




















6 




















7 




















B 




















9 




















10 




















II 






















TOTALS ' 




' ■ 1 


FpRWARO. 


























— 



FiGtTBB XVII (obverse). The ;Parts Cost Card,;showing a complete 
statement of cost 



LABOa MACHINE TOOL. 






.No. 


OPERATION 


TIM5 


RATE 


COST 


TIME 


RATE. 


COST. 




FORWARD 
























































































































































































































































































TOTALS. 


















G 


RAND TOTAL. 










DISCOUNTS. MATERIAL COST 






NET PRICE. OVERHEAD EXPENSE 






FILLED IN BY. TOTAL PARTS COST 







Figure XVn*(reverse). The^Parts^^Cost Card 



98 



ORGANIZING A FACTORY 



r 

PRODUC 








SHIPPING 




BILL OF MATERIAL ' 






STOCK. 








ISSUE 


DBV 










IXPEtJSE 

e Barge 


""„°'"° 


"tr.v; 


„.w,.= 


To"" 


r- 


:^'^iz. 


IPERATIOK 
REQUIRED 


' 


ISSUED TO FOLLOWING SUP AND 

CLOCK OR OHECK NUMBERS ON 
)ATES GIVEN THERE ON AND BELOVj 














































, 





. . 






,.^^ 




^ ^ 








its> 












1 — ^ 









FiGTTRE XII. The Bill of Material which is issued in the 



FORM NO. 32 

STORES RECORD FROM TO 




BIN NO. RACK NO. SHELF OR FLOOR SPACE NO. 




ARTICLE 




SPECIFICATIONS MATERIAL 




STANDARD SPECIAL 








o 


DATE 














FROM WHOM 
















MEASURE 
















O 
Ui 
> 

UI 

o 

, c ■ 


DATE 
















= ROM WHOM 
















SHOP ORDER NO. 
















MEASURE 
















PRICE 
















5° 


< 


FROM 




























TO 




























MEASURE 




























o 

2 Z 

05 


DATE 




























MEASURE 




























ENTERED BY 




























OFFIC 
1 


E RECORD, POST EVERY 4 WEEKS 




' 



Figure XXII. A detailed card for a specified time on which are poste 
receipts and deliveries of stock 



'' FORM NO. 30 

DESCRIPTION OF ARTICLE 


RECEIVED 


GIVEN OUT GIVEN OUT | 


ORDERED 


DATE 
NVOICE 


FROM 


QUANTITY 


DATE 


OEPT. 


OUAN- 


lALANCE 


DATE 


DEPT. 


QUAN- 
TITY 


lALANCE 










































































1 

























FiGXJBE XX. The first of the cards on which the Chief Stores Clerlj 
records'stock on hand 



G. E. WOODS 



99 



NAME 












MODEL NO. 












SERIAL yiO. 













RETURNED 

AFTEB fOB FINISH- 
OPERATIOH INC TO SLIP 



QUANITITIES 
AND DATES A3 



Superintendent's office before work on an order is begun 



1 

BIN wn 


STORES RECORD FROM 

RACK NO. 




190 TO 


FORM NO. 31 ' 

190 


ARTJCI F 












SPECIFICATIONS 




STANDARD 




SPECIA 
IN STOCK MINIMUM TOR 




MAXIMUM TO BE CARRIED 


E CARRIED IN STOCK 




DATE 










FROM WHOM 










SHOP ORDER H 










MEASURE 










5 


FROM 




























TO 




























t- 

3 
O 

z 

> 

o 


Ul 

a 

10 

< 
u 















































































































































































































































































































































































zz 


1 DATE 




























MEASURE 




























ENTERED B 


























_l 



FiGiTRE XXI. A detailed card for a spepified time on which are posted 
receipts and deliveries of stock 



100 



ORGANIZING A FACTORY 



E-SEE FILE NO "-SlisJJwpiSSgsWS^^ , iV 

APPLICATION FOB (>5SlT^SliK.v-||S^ 

■•'; APPLPCAr^T'S NO. 190__..J^/ 

^l^f/,€ - - - -- TOWN __ _ ■• 


COUNTy_ ,._; . STATE .,; 


NOW EMPLOYED AT 
AS 


TRADE 


TIME AT TRADE •.:;; 


AGE 1 WHERE EMPLOYED LAST 

■ 1 


WHY RELEASED 1 HOW LONG THERE 


MARRIED 
SINGLE 


EDUCATION 


WHERE 


REFERENCES ■; ' '::■& 


RELATIVES IN FACTORIES 




NATtONALlTY U. S. CITIZEN 




LANGUAGES SPOKEN 




UNION OR NON-ONtON 







Figure XVIII. The card bearing detailed information of the applica- 
tion for work 



RECORD OF WORK SPOILED 




|;||||||if:;g 


I-'' i 1 ! 




















9i^t^cmmHM 


S;^ ; ' i 




















|g^^C&s¥"'-^--v 


J i 1 


















f: 


REMARKS 




m 


DEPT. 

SEE FILE NO, CARD NO. _„ 

EMPLOYE'S RECORD CARD 

NAME APPLICANT'S IMG. 

:;:AeD«esS: .,_._._._ _ file no, ._ 

? PbS:|¥i6ft _ _ _ WORK 

DATE FIRST EMPLOYED , CHECr. OR CLOCK NO 

NATiONALITV__ __ U. S. CITIZEN _ AGE _ f '^"•'^R'^D 

] SINGLE ; 
TRADE _.: ... RATE PER .i ,m 




CHANGE 

OF 
WAGES 


DATE 


1 






1 


i 


1 M ! 


! 1 1 








RATE 


1 






1 


1 




ill 








bATE QUIT CAUSE 




DATE DISCHARGED CAUSE 








TRANSFD 


DEPT. 


1 t -1 ■ 




i 






TO 






DATE 


:■'■■} \ 










! 





Figure XIX. Employe's Record Card. Record of Work Spoiled Card 



CHAPTEE YIII 
THE MACHINERY OF COST GETTING 

A practical cost system must not only give the cost 
of a unit as a whole, but to be effective it must also 
give the cost of each part, and the cost of each operation 
of each part. 

The reasons for this are obvious. A plant manager 
must know exactly where a reduction in the cost of a 
product can be made, in case competition is too close or 
dividends are unsatisfactory. If competitors in the 
same line can at any time undersell him, one of two 
things is evident : They are either manufacturing their 
goods cheaper, or they are doin^ business without 
profit. Consequently any method employed for collect- 
ing and tabulating cost on a product must be such as 
will reveal just where it is possible to reduce the cost of 
manufacture by changing the method of tooling, the 
method of handling, the method of assembling, or even 
the design of the part itself. As pointed out before, 
this is especially necessary in those elements that go to 
make up nonproductive costs. 

Further, a cost system to be effective must be sys- 
tematized in such a way as to permit of the use of any 
or all different methods of paying labor that may be- 
come necessary. In other words, the system must be 
such that, after a few weeks paying of labor by the day 
or hour, the facts relative to the cost per piece or per 
operation can be obtained so accurately as to enable the 
adoption of either piece-work at so much per piece, or 

101 



102 ORGANIZING A FACTORY 

the premium plan of paying by establishing the time 
limit per piece. 

A system for keeping cost in such detail will enable 
a plant manager to tell, definitely and with surety, 
prices for repairs. It also gives him, in connection with 
a proper bill of material or specification sheet and a 
stores record of material, an absolute key as to the 
amount of stock required to make up any special con- 
tract or sheet order. Thus in figuring estimates on 
work he can make them with a certainty regarding 
profits, and in making purchase of material for them he 
can do so without over or under buying. This certainty 
can be reached in no other way and is a thing of no 
small importance in itself. 

The several groupings in a cost system and the 
several items that compose each group must be ar- 
ranged in such a way that the latter shall be tabulated 
not only for use in connection with the cost system, 
Analysis of ^^^ shall also be in the form of what is 
Items, Parts known as a perpetual inventory. By this 
and Operation j^eang the value of power, equipment, ma- 
chine tools, small tools and et ceteras of such nature 
can be readily ascertained at a moment's notice. This 
plan, in conjunction with proper methods of handling 
material and stock, composes what is practically known 
as a Perpetual Inventory System. 

> The first desideratum in the devising of a system as 
set forth in Chapter VII for collecting costs in the an- 
alysis of items to be manufactured. These items must 
have due consideration in the draughting or sample 
room, where they are divided into parts and the number 
of operations required on a piece of raw material to 
make it earn the name of part. They should then be 
classified on a card, as in Figure VI, to be used for 



C. E. WOODS 103 

reference by the Superintendent, Stores Clerk and Cost 
Clerks. 

Each one of these parts must be given a heading 
number to distinguish it from all other parts — for in- 
stance, in the manufacture of harvesting machines, take 
a wheel. There are many sizes and kinds of wheels, but 
"Wheel," as the name of a part, should always have the 
same number. Thus No. 22 would always mean a wheel, 
no matter what kind of a wheel it might be ; while H22 
or M22 would indicate the model or specific kind of a 
wheel that was to be covered. This Parts' Key Card 
has also on it, as indicated, the drawing number, the 
pattern number, the die or jig number, the kind of ma- 
terial that is used and the amount required, the model 
that the part is used on, and the name and number of 
the operations required to make a piece of rough ma- 
terial into a completed part. This card is the first step 
in the compilation of a cost system, as from it all the 
necessary numbers and names are obtained with which 
to mark job tickets, bills of materials, and other forms, 
as may be required. It serves no purpose beyond this, 
being precisely what its name indicates — a Key Card, 
one of which must be made out for every piece or part 
manufactured in a factory. 

The next step is the matter of records for patterns, 
dies, jigs, special tools and machine tools, as indicated 
Accu- ^y Figures VII, VIII, and IX. The items 

rate Specified on these cards are so self-ex- 

Eecord planatory as hardly to need detailed de- 

scription. They serve three purposes; first, they serve 
to make a complete reference record regarding the 
several items they cover; second, they serve as a per- 
petual inventory; and, third, in connection with the 
Machine Tool Record Card, they indicate at a glance 



104 ORGANIZING A FACTORY 

the hour rate to be charged for the hourly wage to be 
earned by any machine tool. 

Too much importance cannot be attached to the 
exact filling in and recording of all items that are to be 
covered by these cards. They should be filed in such a 
manner as to be immediately accessible for the purposes 
for which they are designed, one complete set for the 
main office, one for the Cost Clerk, and one for the Store- 
keeper. 

We now come to what is really the vital part of a 
cost system — the methods and forms used for the pri- 
mary collection of the costs on labor and material, com- 
monly termed "flat cost." 

Whenever it is proposed to build anything, whether 
it is a house or a machine or railroad, the first thing 
that has to be done is to make an estimate on the 
amount of material that will be required. An architect 
in his specifications always furnishes what is called 
a "Bill of Material," from which contractors figure 
their estimates. In connection with cost systems an 
entirely new feature covering this same has been intro- 
duced by the writer. Whenever a production order is 
issued to the manufacturing end of a business from the 
main office, it does not carry with it a bill of material. 
Consequently the latter must be made up by the Super- 
intendent, or whomever he may deputize, before a requi- 
sition for the purchase of material to cover the produc- 
tion order can be made. The method as adopted by the 
writer is to make this bill of material a permanent 
record in connection with the production order, and to 
further make it a record of the progress upon the work 
required on the material it represents. Upon it is also 
placed such necessary information as is required for 



C. E. WOODS 105 

filling out the workman's cost time slips, job tickets, 
and so on, as shown in Figure XI. 

This bill for material is made out in duplicate 
(Figure XII). One copy is retained by the person who 
makes it out originally ; the other is given to the Chief 
Stores Clerk, together with a copy of the production 
order which it covers. The original filing in this bill of 
material takes it up to the column that shows to what 
The Bill ®^^P ^^^ clock, or check number, the items 

of are issued by the Stores Clerk. After that 

Material ^jj records made on this bill of material 

are made in the departments of the stores clerks. 

In the first column are placed the number of parts 
required; in the next column the expense charge to 
which they belong, which is taken from the key fur- 
nished by the monthly distribution sheet (Figures XI, 
XIII and XIV) , The third column is the heading num- 
ber as recorded on the Parts' Key Card ; the next is the 
name of the part from the Parts' Key Card ; then, fol- 
lowing in succession, are the drawing number, the pat- 
tern number, the die or jig number, the kinds of ma- 
terial, the number of operations required — all from the 
Parts' Key Card. 

The department to which the part is to go is filled 
in by the routing department or Chief Engineer, as the 
case may be, and checked by the Chief Stores Clerk, or 
his assistant, when he gives out the material to the de- 
partment store clerk. Then comes a column which re- 
cords the time slip number, and the clock or check num- 
ber of the workman, to whom the part or parts, repre- 
sented on the same line, was delivered. 

The next column is for the purpose of fixing a 
record of the parts on which work may be temporarily 



106 ORGANIZING A FACTORY 

stopped. To illustrate, if a part should have ten opera- 
tions, and at the end of the fifth operation it became 
necessary to stop working on that part for a while, the 
Stores Clerk must be notified of this fact. He then en- 
ters it in the next column "Returned After Operation," 
accordingly. In some instances material in this semi- 
finished condition is to be returned to the storeroom. 
In other instances it will not, especially in connection 
with heavy castings or a large quantity of pieces. 

When work is again taken up on such parts as have 
been stopped, the fact is noted in the next column. The 
following column is for recording the quantities and 
dates as finished. That is, if 1,000 parts are to be made, 
and they are finished in installments of one, two or 
three hundred, it would be so noted in this column. It 
is at this point that material passes from rough stores 
into finished stores. The next column is where finished 
stores are given out for the purpose of assembling. 
Where stock is given out in bulk, such as steel rods, 
bars, brass stock, sheet metals or liquids, the quantity 
is entered in the next column. After the work required 
from that quantity has been done, what remains is in- 
dicated in the next column, while the following column 
Bill of Material ^^'^'^^ ^^^ actual amount that was used, 
and Store The three succeeding columns are for the 

Departments purpose of making deductions of cost on 
this material. 

A careful study of this arrangement is required, as 
it is purposed for other conditions in connection with 
the workmen's cost, time slips and daily checks. 

After the Chief Stores Clerk has been given this 
bill of material, it can readily be seen that he has no 
license to make requisitions on the purchasing depart- 
ment for material in excess of the amount called for on 



C. E. WOODS 107 

the bill, except in ease the stock for any particular 
parts is below the minimum standard amount to be 
carried on hand. The amount on hand is always given 
on his requisition for purchase. 

The minimum and maximum amounts of stores to 
be carried should be standardized as early as possible, 
and constantly recorded on the cards used to indicate 
the receipts or deliveries of stock. In this way, as 
stated before, over or under buying of stock is impos- 
sible. 

For the filing of these bills of material, a center 
post with swinging doors of a suitable height should 
be made for the sub-stores' clerk. The bills should be 
filed on each side of these swinging doors. In this way, 
each bill of material is accessible in a moment's time, 
and can be filed in regular order, as issued. Each bill 
of material, after it has been received by the Stores 
Clerk, must remain in full force until all the work on 
the material it represents is either completed or entirely 
abandoned. 

A requisition form should be used for stock and 
material that does not enter into a product for sale, 
such as may be required by the draughting room, tool 
room, experimental and model room, or for any general 
supply needed throughout the factory or office. This 
form corresponds to the bill of material. 

We now come to Figure XV, the Workman's Cost 
Time Slip, a form that can be used in several ways, 
and for either day work, piece-work, or for premium 
work. Each slip has a serial number, as will be noted, 
and then, following consecutively, shop order number, 
stock order number, shipping order number, model 
number, number of pieces that are being made, drawing 
number, pattern number, die or jig number, operation 



108 ORGANIZING A FACTORY 

number, bill of material number. The operation and 
kind of work being done is also indicated. 

One slip is to cover each operation on any part. 
All of the foregoing numbers, with the date of issue, 
must be filled in on the slip from the bill of material by 
the Stores Clerk, or his assistant, which then accompan- 
ies his requisition to the Foreman for the work that is 
to be made in the factory in accordance with the bill of 
material they represent. When the Foreman receives 
these slips, he or his clerk fills in the workman's name, 
clock or check number, machine tool name or number, 
to which he wishes the slip to go. 

The workman then has all the information neces- 
sary to enable him to proceed with the work. He knows, 
Use of ^^ addition to the shop, stock and ship- 

Time ping order numbers, what drawing num- 

*^ ber or operation number he wants, what 

die or jig number he may require and so on. The 
amount of time that is saved in this will more than 
pay for the use of this slip by enabling the workman 
to immediately get what he wants without having to 
run around for such information, as is so often done. 

Upon the receipt of this material, the workman fills 
in the "hour started" work column, and then records 
each day the number of hours consumed in the opera- 
tion represented on the number of parts that are given 
him to work with, the total number of which is given 
in one column. If the work is being done under the 
premium or differential piece or piece-work system, 
columns are provided for gain or loss of time. If, on 
the operation, the man works overtime by day work, a 
column is provided for that. The rate is given for any 
method of paying, as is also the time limit per piece or 
quantity. 



C. E. WOODS 109 

Now there are two methods of handling this slip. 
It can be retained by the workman until the operation 
it covers for any number of parts is completed. Then 
he himself can enter his time on it, turning in daily 
day work check (Figure XVI) until the work on the 
cost time slip is completed ; or, after the first day's work, 
this can be turned in to the cost keeper, who fills it in 
from the daily day work check or daily piece-work check 
(Figures XVI and XV), if it is found more desirable to 
do it this way. 

This form serves two other important functions. 
First, it serves as a voucher that a man should have the 
Auxiliary material which he wants to work with, 

Functions of and indicates to the Stores Clerk exactly 
Workman's Slip ^^^^ ^^^ material is for, so that in keep- 
ing a record of the work as it progresses, he knows 
what workman is on any individual part in the factory, 
and just exactly what quantity of material he is 
licensed to take out of stores. Secondly, it serves as a 
receipt when material and work is passed on from one 
workman to another. Whoever receives the rough ma- 
terial for the first operation has his name recorded on 
the bill of material. When this operation is done, it 
is passed on to another workman, who must become re- 
sponsible for the slip of the workman preceding him 
by signing his name on the line "Defects accepted by." 
The value of this is that it brings into action the law 
of self-preservation and makes a sort of self-inspecting 
system, as the second workman will not sign this slip 
without being reasonably sure that both the material 
and workmanship that he is receiving are O. K. This 
continues from one operation and workman to another 
until the part is finished. If the slips are given after 
the first day's time to the cost keeper, they must be re- 



110 ORGANIZING A FACTORY 

turned to the workman upon completion of the job, for 
the signature of the next succeeding workman. 

After the operation is completed, the total cost is 
entered up on this slip on the lines indicated. Thus, by 
the use of this slip, in connection with the bill of ma- 
terial, we have a short cut to all the flat, or labor and 
material, costs. Ten operations on any part will call 
for ten slips which, filed together, give a complete an- 
alysis of all the operations for that part. The parts on 
these ten slips are then transferred to the Parts' Cost 
Card (Figure XVII) , on the foot of which can be entered 
the material cost from the bill of material, together 
with the overhead expense, making a complete state- 
ment of the cost of every part manufactured in the 
factory. 

Any number of complete units that it is desired to 
manufacture can thus be grouped together, and the cost 
Total collected on the total allotment without 

Costs any bookkeeping or record making other 

Shown than the bill of material and the work- 

man's cost time slip in connection with the daily 
checks. So, were it desired to manufacture twenty 
thousand bicycles, or one hundred automobiles, they 
would go into the factory under a production order 
number covered by one bill of material, to which upon 
completion would be added all of the workmen's cost 
time slips; these would give the exact flat cost of the 
entire allotment. These cost time slips are all designed 
for filing in binders. Hence upon the completion of any 
order, they compose a complete record book of costs, to 
which should be attached the bill of material belonging 
to them. 

This method of collecting costs, by a proper record- 
ing of the numbers and conditions, as provided for on 



C. E. WOODS 111 

the bill of material and the workman's cost time slip, 
enables any part or operation to be traced to the exact 
source where it was made or performed. Thus, in case 
of mistakes, errors or bad workmanship, the Superin- 
tendent or management can unerringly trace the party 
responsible for it. 

As fast as the cost time slips and workman's daily 
tickets are turned in from the factory to the cost keeper, 
they should be classified under two prime headings: 
First, shop order number, covering the whole job ; sec- 
ond, parts heading number. This classifies all of the 
operations belonging to each part of all the parts on 
any one shop order. This makes a very simple method 
of procedure for keeping a record of the work. Not only 
does it throw up the record after the work is finished, 
but it also gives the cost of the work as it progresses 
from day to day and its stated progress and nearness 
to completion. It makes, not an estimated condition of 
the work, but an actual statement concerning it. 

So far as nothing but the actual collection and 
recording of flat, or labor and material, cost is con- 
cerned, the forms grouped referred to are all that are 
necessary, as they in themselves, individually and in 
their relation one to another, constitute what would 
ordinarily be a complete cost system. But, as before 
^^^._ stated, costs are of two kinds, productive 

tionai and nonproductive; consequently these 

FunctioiiB forms must lend themselves to the collec- 

tion of the nonproductive materials, supply and labor 
element of the factory, as well as the productive costs. 

They must also harmonize with such forms as are 
necessary for the moving of the product from point to 
point in the factory, by means of production orders, 
shipping orders, and so on. Further, they must consti- 



112 ORGANIZING A FACTORY 

tute, in connection with all the fonns used in the manu- 
facturing business, one of the strongest elements for 
maintaining discipline and general system throughout 
the factory. 

After having' collected the workmen's time slips 
and checks daily, it becomes necessary to provide two 
recording sheets — one for labor and another for ma- 
chine tool time. 

Figures XIII and XIV are an exposition of forms in 
detail. First is Form XIII for recording labor. In the 
Make-up of ^^^* column the employe's name and clock 
Labor or check number are placed in the two 

Time Sheet spaces provided. The next column indi- 
cates the kind of time under which he is working. R. 
T. means regular working time on day work or piece- 
work ; G. T. means the time that is gained over this on 
the premium plan. 

To illustrate : If a man is working on the premium 
plan, where nine hours constitutes a day, nine hours is 
put down in regular time. If the man has gained on 
the work done for that day, say two hours, it would be 
put down opposite G. T., indicating that the man had 
made eleven hours' time that day, two of which were to 
be divided between himself and the company on what- 
ever basis may have been established. On the other 
hand, should he work nine hours, and not accomplish 
in the nine hours as much as he should, or, in other 
words, should he fall short of this limit of two hours, it 
would be indicated in the column opposite L. T. 

^ O. T. is for overtime work, where one and a quarter 
or one and a half wage is paid for all overtime. This is 
entered up on this sheet from the workman's daily time 
ticket or cost time slip. This method saves an immense 
amount of time in making up payrolls, as they 



C. E. WOODS 113 

are virtually made up by each department daily. 

In addition to hours worked, the shop order num- 
ber is recorded, and the expense charge under which the 
man is working. In this way a complete record of the 
expense distribution is made directly in connection 
with the man's time and the shop order number under 
which he is working, for either productive or nonpro- 
ductive labor. This space also provides a further con- 
venience for such departments as the drafting room, 
experimental or model work, tool room, or other non- 
productive departments. If a man is working on regu- 
lar time — that is, day work, G. T., L. T. and O. T. can 
be scratched for any one day, and four different job 
shop order numbers or expense charges indicated in the 
same space. Such a necessity often arises, especially in 
the departments enumerated, as the men are frequently 
changed from one short job to another under entirely 
different shop order numbers belonging to an entirely 
different expense charge. 

This sheet is provided for continual record for 
thirty-one days, with summaries, as will be noticed in 
the last four columns covering it. 

This sheet also serves another purpose. It makes 
an absolutely perfect comparative record of the time 
Time Sheet Consumed on any operation or job in the 
as Eecord factory, SO that after day work has been 

and Payroll ^^ vogue for a while, from its record, piece- 
work or premium work can be accurately established. 

It gives a comparative record of the time consumed 
by different men on the same class of work, and a com- 
plete record of each individual man for comparison 
from day to day or month to month. This form of re- 
cording labor, as devised by the writer, is entirely new 
in connection with cost systems, and has been found by 



114 ORGANIZING A FACTORY 

him to be one of the most satisfactory forms ever con- 
ceived for making such records. 

Further, this sheet answers every requirement for 
a payroll sheet, as at the end of each week or two weeks, 
a man's time can be footed up and his pay envelope 
made out from same. The day terminating each week 
or pay day should be filled in with red ink, so that the 
division of the monthly record into pay days may al- 
ways be apparent at a glance. 

Figure XIV is a similar record sheet for the wage 
earned by machine tools to cover their own deprecia- 
tion, in accordance with Chapter VI. The name and 
number of the machine is indicated in the first column. 
The next column indicates the kind of time: regular 
time means a full day's work, overtime the amount of 
time the machine works over the regular day's work on 
any particular day. Instead of having an overtime 
charge, two expense charges or job numbers may be 
Machine given for one machine tool in the same 

Tool day. It is found on the average that these 

Time Sheet ^^^ ^^^ ^jj ^j^^^ ^^^ necessary. Should the 

work in the factory be of such a nature, however, that 
the machine tools are constantly changed from shop 
order to shop order during the day, this form can be 
made up with four spaces, the same as Figure XIII. 
But this will rarely be found necessary. 

Like Figure XIII, Figure XIV is provided for con- 
tinuous record for a month, with summaries at the end, 
so at the end of each month it shows a comparative 
daily record of all the machine tools in a factory — a 
comparative monthly record with a summarized state- 
ment of the amount of earnings for each individual 
machine tool for that period of time. 

As stated in Chapter VI, the standard time for a 



C. E. WOODS 115 

machine is 166 hours per month. From the total number 
of hours per month, we can always ascertain whether 
a machine is working full or over time. At the end of 
several years of this record we can determine exactly 
what is the age of a machine in actual service without 
reference to calendar time — a thing of no small im- 
portance when the time comes that it is desired to dis- 
pose of machine tools. 

This record also shows exactly what is being ac- 
complished with the machine tool equipment of a fac- 
tory; how many of the tools are busy, and how many 
are idle. By watching it the Manager or Superintend- 
ent is enabled to determine whether he has the work 
distributed to the best advantage in the factory or not, 
and whether the investment for such tools earns all 
that it possibly can. It will further indicate any neces- 
sity in a growing business for the purchase of new ma- 
chine tools. Requisitions by foremen or superintend- 
ents are often made for new equipment, when twenty- 
five per cent, perhaps, of the equipment they have is 
idle. 

It is now apparent that an entire collection and 
distribution of all active costs, both productive and 
nonproductive, can be made and distributed without 
bookkeening or ledger accounts, excepting in summary 
form. 



CHAPTEE IX 
LABOR RECORDS AND CLASSIFICATION 

In addition to keeping a record on the costs of 
labor as set forth in the preceding chapter, there are 
some other conditions in connection with labor that 
it is absolutely necessary to record from time to time 
and also regularly, either daily, weekly or monthly, as 
the case may demand. 

First, are the applications made for positions as 
illustrated on card, Figure XVIII ? These cards should 
all carry a card number as pertaining to themselves, a 
file number in which a file of correspondence relative to 
this particular applicant should be placed, together 
with the applicant's number, which number should 
always be used in corresponding with an applicant. 
Other information as given on the cards is self-explana- 
tory. 

For the employment of all artisan labor, clerks, 
etc., this card covers an abundance of information. 
OflScers and high salaried men usually come under a 
different consideration, which oftentimes requires more 
searching inquiry than this card furnishes, although 
these cases, as in any and all labor employed, should 
be registered on one of these cards. 

The card shown in Figure XIX immediately comes 
into life upon the engagement of an applicant from 
ABBlioant's *^^^^ Figure XVIII, and is the summarized 
First record of a man from the time he is em- 

Eecord ployed until he leaves the employ of the 

company. This card should carry on it the same file 

116 



C. E. WOODS 



117 




Figure XXVII. Comparative Labor Chart, seasons KC". Iff, 
actory labor only 



rrd 



118 



ORGANIZING A FACTORY 



ROUGH STORES LEDGER 


RECEIVED 


DATE 


ARTICLE 


FROM WHOM 
RECEIVED 


REQUISITION 


SIN NO 


RACK NO. 


SPAC°E°NO 


-ik 




































































1 ~~.^_^—^ 








, - 


'~— -— J 


'-II 1 



FiGTJKE XXni. The Rough Stores Ledger Card on which receipts and 
must balance " 



FINISHED STORES AND MERCHANDISE LEDGER 


RECEIVED 


DATE 


ARTICLE 


FROM WHOM 
RECEIVED 


R^omlmoN 


BIN NO. 


RACK NO, 


s«ce°n"o 


■rf 


















































L — -J 


|_ 

















Figure XXIV. The Finished Stores Ledger Card which performs ex 
stores 



' SMALL AND HAND TOOLS LEDGER 


RECEIVED 




DAJE 


ARTICLE 


FROM WHOM 
RECEIVED 


T^Z. 


QUALITY 


■r" 


£'^i 


COST 


DATE 


TO WHOM 
DELIVERED 


























































































- 




— ^... ..^_ 








^ — 










^ ' --—_-—' 



Figure XXV. A Stock Ledger Card for small hand tools. The three 



GENERAL SUPPLIES LEDGER 


RECEIVED 


DATE 


ARTICLE 


FROM WHOM RECEIVED 


°ece3 


OU°Lm 


,:Se 


?=: 


























































_— - — — 1 




.^— —_—»-—--— _^^,»——' 











FiGURE*XXVI. The Stock Ledger on which is kept record of all gen" 



C. E. WOODS 



119 



FORM NO. 33 1 




GIVEN OUT 1 


T.ZZ 


TO WHOM 
DELIVERED 


SelivIrTo 


^/t'otk"" 


FINISHED 


EhSp 


ba\°"c'e 


NET 
COST 


INVENTORY 




































































































































— * 



delivery of all stores must be posted— the "Received" and "Given Out" sides 



KORM HO. 3*~j 




GIVEN OUT ] 


7^^'. 


TO WHOM 
DELIVERED 


"T^E" 


H 


'~°Sr 


BALANCE 


zB. 


NET. 
COST 


mVENTOR. 












































































~-^ ' 












_>'■ 1 


1— ~-_J— J 



actly the same duty for Finished Stores that Form XXIII does for rough 



FORM NO. 35 1 


GIVEN OUT 


FIETURNED | 


oe"lver7d 


BL 


'£i 


COST 


newstoIk 


DATE 


BY WHOM 
RETURNED 


CONDITION 


VALUE 


oBL 










































































































„ 












^ 1 


'•^^^^--Vl 


~ 


'"' "J 





headings permit a complete inventory of new tools in use can be kept 



FORM no: 36 


1 




GIVEN OUT 




COST 


DATE 


TO WHOM 
DELIVERED 


DELIVERED 


=d' 


UISIT10N NO, 


TO BE USED FOR 


COST 


BALANCE 






































































































1 


— 


k— 




1 


1 1 


. 




1 


_ 


1 



eral and miscellaneous supplies— used as are the previous cards 



120 



ORGANIZING A FACTORY 




C. E. WOODS 121 

number and applicant's number as card Figure XVIII, 
and all correspondence resulting from this card should 
be filed in the same file so that at any time the complete 
history of any one man is kept together in one file of 
which either one of these cards is an index. I have seen 
many elaborate systems for covering these same fea- 
tures but after they were worked out in their detail I 
have found every bit of information that is required 
concerning labor in this respect is provided for on these 
two cards. 

We now come to a form of report which should be 
filled out at some stated period, either weekly, monthly 
or at given pay periods, which shows the fluctuation in 
labor by departments and by classifications of each de- 
partment in such a way as to correspond exactly with 
the distribution of labor expense on chart Figure IV, 
Chapter III, and with the prime organization chart, 
chart No. II, Chapter II. It is noticed that these 
departments are classified on the end under manufac- 
turing and commercial expense, also under productive 
and nonproductive departments. 

It will also be noticed that nonproductive and 
productive labor is divided up by classification of fore- 
Fluctuations °^®°' clerks, etc., and the number of each 
of kind of this classification, together with 

Labor ^j^^ percentages of each kind in each de- 

partment, is given. There is also a column, the one 
next to general information, in which the percentages 
of each department to all other departments is also 
given. This form thus provides an immediate survey 
at some stated period of any fluctuations, either by de- 
partments or by classification of different kinds of 
labor employed in any one department. 

A comparison of this report is of vital importance 



122 ORGANIZING A FACTORY 

in connection with the variations in the amount of out- 
put, as with increase or decrease of output continuing 
for any period of time certain percentages of fluctua- 
tion in labor by departments and in labor of each de- 
partment should take place, which will gradually be 
ascertained after a few weeks or months of careful 
watching. In other words, it forms an instrument for 
making up a schedule of labor required to produce some 
given output. I cannot impress too strongly upon the 
reader the value of this simple report in these respects. 

I think it opportune to say here a few words in re- 
gard to the policy and attitude of any administration 
toward labor, and 1 say it from a very wide experience 
and study of the question. It should be borne in mind 
that labor as a whole does not work from choice but 
from necessity, and this effort is obtained only by em- 
ploying incentives, and while the incentive of wage is 
the first desideratum, it does not by any means, as 
many suppose, cover the whole question. Absence of 
any other incentive than this simply makes it impos- 
sible to progress or modernize a business in any way. 
In addition we should bring to bear upon labor such 
incentives as will result in the use of their heads as well 
as their hands, by way of promotion, personal credit or 
financial reward. 

Those men in a company who are in charge or have 
authority in any way, should have applied to them such 
Incentives incentives as to lead them to distinctly 

to understand what their possible promotion 

Labor ^^^^ ^^ ^^^ what personal credits will be 

alloted them for achievement of any kind. Other la- 
bor throughout a factory should have such incentives 
applied to it as will make them understand that sug- 



C. E. WOODS 123 

geetions for improvement in any way will be a subject 
of financial reward. 

A workman may be dense and plebeian in his per- 
sonal make-up. At the same time he may acquire an 
experience in certain operation or operations after 
months or years of service that will point out a new 
method of processing or even a design itself that will 
very materially result in a reduction of costs of pro- 
duction, and no incentive is so strong in any factory 
as the one which makes this man understand that if he 
can do this he will be suitably rewarded in hard cash. 

Every man in every factory should be made to 
understand that provisions are arranged whereby his 
communication on any subject of this character will 
not first have to pass through his and several other 
foremen's hands with the probability of never reaching 
headquarters. He must be provided with means 
whereby his suggestion can reach the management di- 
rect and be made to understand that it will be given 
consideration by this management, — first, in the shape 
of an immediate acknowledgment, and second, in the 
shape of action, either for or against, by some com- 
mittee that may be provided for such work. If any one 
doubts the efficacy of such an arrangement, let them 
try it for sixty days and they will marvel at the amount 
of brain power stored up in their business that they 
have never taken advantage of. 



CHAPTER X 

PERPETUAL INVENTORIES— THE MACHINERY 
FOR KEEPING THE RECORDS 

Before going into the detail of methods which 
should be employed in a peri)etual inventory, I want to 
make one thing clear — that there is in reality no such 
thing as a perpetual inventory — the name unfortun- 
ately is a misnomer. Continuous valuations could more 
properly be used as the term, as this is exactly what is 
obtained — continuous valuations which have to be re- 
capped and summarized weekly, monthly or annually 
to obtain an inventory proper. 

There is still another point that should be given 
due consideration in connection with laying out a sys- 
tem for this kind of work — the method to be employed 
for receiving goods. It is clearly within the province 
of a purchasing department to buy goods. It is also 
within its province to receive goods at the factory. But 
after delivery and receipt of goods are made, all receipts 
of whatsover nature, except coal, machinery, patterns 
and similar articles, should be passed into the keeping 
of the Chief Stores Clerk. 

All checking by the receiving clerk should be done 
independent entirely of invoices, as it is the only way 
to insure a proper checking. Checking from an invoice 
makes check marks too easy and counting too hard ; in 
other words, goods are often checked without counting. 
As soon as goods are received by the storekeeper or 
stores clerk they should again be checked off by him on 
a memorandum of receipt, independent of the receiving 

124 



C. E. WOODS 126 

clerk. The storekeeper signs this and gives it to the 
receiving clerk, who will compare it with his own 
memorandum of receipt, which has been compared with 
the consignor's invoice in the main office. As soon as 
this is O. K.'d the stores clerk adds to his standard 
cards, covering items in stores, the items received in 
new goods and enters them upon his various ledgers. 
This practically inventories this class of assets to date. 

The first tools necessary for a stock-keeping sys- 
tem are the cards described in Chapter VII, on which 
Necessary ^^^ classified all the fixed assets of a com- 

First pany, such as fixed tools, general equip- 

®**^° ment, and so on. On the back of these 

cards are arranged columns for placing valuations from 
year to year in accordance with the depreciation or 
earnings which have been charged to cost, as was ex- 
plained in Chapter VIII. For instance, if a lathe has 
earned $100 on a wage scale during the year, that much 
of it should be written off on the back of the card as a 
depreciation. This is in accordance with the general 
scheme carried out in Chapter VIII. 

The next step is to provide cards for the use of the 
Chief Stores Clerk for keeping track of the stock or ma- 
terial that is in storage. Figures XX, XXI, XXII ex- 
hibit these in detail. On Figures XX and XXI are 
posted all receipts put in boxes, bins, racks, shelves, and 
so on. All goods given out are likewise posted on this 
card. 

Figure XXI shows a more detailed card of this 
character, in which the "on hand" amounts are entered 
and balanced off in some specified time required. It will 
be noticed that this card shows the minimum and maxi- 
mum amount of any item to be carried in stock, the 
date from whom goods are last received, and the dis- 



126 ORGANIZING A FACTORY 

tribution as they are given out. If the system is laid 
out in accordance with Chapter VIII on keeping costs, 
the charges for everything given out from stores will be 
covered by a charge account or shop order number. 

Figure XXII is a ledger card to be filled out once a 
month — say on the first — and kept in the main office 
or purchasing department as the inventory record of 
stores on hand. Figures XX and XXI are very similar 
in use — either one can be used in the same way. 

Figure XXIII is a rough stores ledger on which all 
goods of whatsoever nature of rough stores must be en- 
jj^g tered on the receiving side. Thus, if 1,000 

Bough stores castings are received on a certain date. 
Ledger ^j^^^^ alone would be entered on that side 

of the page until they were balanced up on the "given 
out" side to the same quantity. In other words, the 
handling of stores by this method is exactly the same as 
a cash ledger — quantities given out must balance re- 
ceipts in opposition. In filling out the "to whom de- 
livered" column, it should be borne in mind that the 
"to whom" is a charge account, shop order number, or 
whatever will show the exact classification which the 
distribution of "given out" covers. Columns are pro- 
vided on the right of this, as will be seen, to show bal- 
ances and quantities in values at any time, so that the 
actual kind of items and stores themselves by this 
method never becomes necessary. 

Figure XXIV is precisely the same form of ledger 
as Figure XXIII, but it is used for finished stores and 
merchandise — that is, for such merchandise as is bought 
but never processed — simply handled and resold again ; 
or such parts as are made in the factory, as repair 
parts or carried in stock as finished parts in an as- 
sembling room; or, again, a completely finished prod- 



C. E. WOODS 127 

net. The study of these two ledgers will show that as 
fast as rough stores are made into finished stores they 
will check themselves up properly in the columns indi- 
cated. 

The value of these ledgers in connection with the 
cards cannot be overestimated in both store and stock- 
room, as on them is done all the accounting of all the 
stores, not in dollars and cents, but in quantities and 
numbers. Besides furnishing an absolute key to the 
distribution of stores, where and to what charge ac- 
counts they are distributed, they also indicate instantly 
any discrepancy in the amount used compared with the 
amount received. The Chief Stores Clerk is held ac- 
countable for any discrepancies that may exist. 

Figure XXV is a ledger for small hand tools. It 
will be noticed that on this ledger there are three head- 
Records on ings— one for "receipt," one for "given 
Tools and out," one for "returned." To illustrate 

General Supplies ^j^jg. rpj^^ ^^^^^^ ^^^^.^ ^^^ receive one 

hundred monkey wrenches ; John Smith on a certain 
date has two monkey wrenches given to him; they are 
charged up to John Smith and John Smith must sign his 
name in the column "to whom delivered," or some other 
form of receipt must be used. These two wrenches thus 
stand charged against John Smith until he brings them 
back for renewals or returns or for any other purpose. 
Figure XXVI is a ledger for general supplies used 
in the factory, such as oil, sandpaper, emery, and all the 
miscellaneous supplies that compose the general sup- 
plies of any manufacturing establishment, and is used 
as regards receipts and disbursements of supplies in 
exactly the same way that the foregoing ledger forms 
are used. This same ledger can also be used in the 
commercial end of the office in connection with all 
office supplies. 



CHAPTER XI 

HOW THE EXECUTIVE MAY KEEP IN TOUCH 
WITH THE FACTORY 

Time is too valuable to allow the executive heads 
of present-day business concerns to devote to study of 
long and complicated accounts. They must transact a 
large volume of business ; they cannot afford to distract 
their attention to the detailed minutiae of reports. 

Old methods of making statements have not been 
comprehensive enough. The executive officer of today 
must grasp the whole of a situation or condition with 
as little detail as possible. Not only questions con- 
cerning the moment must be considered, but similar 
prior conditions must also be taken into account at the 
same time, that comparisons of progress may be made. 

In his work for the larger industrials, I believe the 
writer has been one of the first to develop a system of 
expressing business conditions in a concentrated and 
comparative form. 

To overcome the above objections has been one of 
his chief aims in organizing and systematizing manu- 
facturing and commercial affairs by arranging state- 
ments and reports of concerns in such a way as to give 
an instantaneous review of conditions, snap shots of 
industrial progress in which, however, every detail of 
importance is found and placed to its proper reckon- 
ing. 

This is done by making up statements in the form 
of charts instead of balance sheets — a heretofore un- 
known system of dealing with the summaries of a busi- 

128 



C. E. WOODS 129 

ness, although such methods have been used in engineer- 
ing work for many years. 

The value of a statement of any kind, when iso- 
lated, is very small. It is only when compared with 
some other similar statement that its full value is 
found. If a manufacturer says that he employed a 
thousand men last month, the idea is given that he has 
a large factory and employs a large number of men. 
But when he says that he employed a thousand men 
last month, eight hundred men the month before, and 
but five hundred men a year ago last month, the value 
of the current statement is intensified by each compari- 
son. This means that every statement is always 
covered by a time period, and that a corresponding 
time period of some other date is necessary to fully 
grasp the present condition. 

It is because of this that the writer's system of 
chart making has been found so efficacious. There are 
Value of °^ details of a business as a whole, by 

Comparative departments, or by conditions regarding 
Figures goods made or handled, that cannot be 

covered by some form of chart. The limited space here, 
however, will permit of but three general illustrations. 

The first of these is Figure XXVII, which is a com- 
parative labor chart of the number of men employed in 
a factory for a period of three years. The curves in this 
chart are taken from an actual record ending Septem- 
ber 30, 1903. The headings, however, are given for 
1903, 1904 and 1905, showing weekly and monthly 
divisions, and the dates that these come on during 
these years; so that those who may desire to use a 
chart of this kind may copy the headings and apply 
them to their own particular needs. 

It will be noticed in the lines for all three years 



130 ORGANIZING A FACTORY 

that from the 1st to the 15th of October the labor in- 
volves only from 200 to 300 men; whereas, the normal 
working force is from 700 to 800 men. This was a two 
weeks' inventory period, after which the number of em- 
ployes rises very rapidly. By the 1st of November the 
normal number of men employed is very nearly reached. 

In reading a chart of this kind, first ascertain the 
year and date ; follow this line down to the intersecting 
point of the curve for the corresponding year. Then, 
from the dot, trace to the left, where the average num- 
ber of men employed for any particular week will be 
found in the left-hand column. 

For example : On January 3, 1903, 800 men were 
employed ; while the week ending January 2, 1904, but 
750 men were employed ; and the week ending January 
1, 1905, only 690 men were employed. This shows a 
falling off in two years for the same month and week 
of 110 men. 

Even when one not familiar with chart making 
inspects a chart of this kind, he sees at a glance that 
there was a variation in labor for the three years in 
corresponding periods. He also sees at once that there 
was a big drop in labor during the week of April 11, 
1903. These points would constitute his first two in- 
quiries. 

The drop of April 11th was caused by a strike 
which lasted for four weeks, during that year, but it 
was four weeks more before the number of men em- 
ployed had resumed normal proportions — altogether, 
an eight weeks' interference in the business. 

This one chart shows the whole history as to the 
number of men employed each week for a period of three 
years. In other words, at a single glance the compara- 
tive labor conditions of a factory are comprehended for 



C. E. WOODS 131 

that length of time in divisions of one year as compared 
ConiBarative with another. This chart is distinctively 
Labor what is termed by the writer a "time 

Chart period chart." That is to say, it repre- 

sents on each dot the number of men employed at that 
particular time in a way relative to the number of men 
employed before or after it. 

This method of making a chart to cover labor can 
be applied to as many different divisions or labor, or 
hours worked, or payrolls, or comparative number of 
piece-workers and day workers, or comparative number 
of productive as against nonproductive men, as it may 
be desired to have comparisons. Moreover, this same 
method of charting is used for showing the number, 
amount, quantity or measure of goods manufactured or 
sold for each day of the week, or for each day, week or 
month of the year. 

The next chart (XXVIII) is an extremely interest- 
ing one, as it shows a certain output as compared with 
OutDut ^ certain number of men employed. It 

Compared shows, first, the average daily number of 

With Labor employes for each week for a period of 
one year; second, the number of tons of castings that 
were made each week for the same length of time ; third, 
the percentage of good castings that were obtained out 
of the total amount made for each week during that 
time. The double line of percentages should be read 
from the percentage column on the right-hand side, 
while the number of men employed and number of tons 
of castings made should be read from the black figures 
in the column on the left-hand side. 

For example : In the week ending November 15th 
610 tons of good castings were made, 470 men were em- 
ployed and 69 per cent of the castings made were good. 



132 ORGANIZING A FACTORY 

Here is another instance, more marked than ever, 
of the value of comparisons. The chart presents the 
report in so simple a way that we are able to take in at 
a glance the entire year's business as regards labor, 
output and percentage of good results. 

The first marked deviation we notice is in the week 
ending November 22d, which was Thanksgiving week, 
with three holidays, so the output was low. The next 
low drop was the week ending April 4th, which was 
caused by primary elections and corresponding reduc- 
tions in forces. 

But there is something here of vastly more import- 
ance than all this, for we see the highest economical 
rate at which the foundry was operated. The maxi- 
mum capacity of this factory each week was 700 tons, 
and the nearer this .capacity was reached the less the 
labor required a ton of output, as shown in the last two 
weeks of October and by the higher rise during the 
months of February and March; while on the 6th of 
June the cost for labor has been increased to one ton 
a man instead of 1,3 tons a man as in the week of March 
7th. All through the summer run this higher cost of 
outfit was maintained, until in August and September. 
As the tonnage crept up a little, the cost for labor was 
lessened. 

There never was a balance sheet or a numerical 
statement made that would show actual conditions of 
a year's business as plainly as does this chart without 
spending hours of time over it in order to get an intelli- 
gent understanding of comparative conditions and re- 
lations. 

Figure XXIX is particularly applied to a commer- 
cial or mercantile business and covers a time period of 
one month by days. It contains a quadruple expression 



C. E. WOODS 133 

of a single item — e. g., sales — and shows two different 
methods of charting; one, which the writer terms a 
"step chart," and the other by curves as in Figures 
XXVII and XXVIII. It shows the sales each day, as 
compared with every other day, and then the cumulative 
sales from day to day for the entire month. That is to 
say, the sales of one day are added to those of the next, 
and so on for the entire month, ending in the total sales 
for the month. The total sales are represented by curve 
No. 3, or about |14,000 for the month. 

In this chart the cumulative black lines are read 
from the black figures in the left-hand column, while 
the amount of sales made for each individual day, as 
indicated by the double line, is read from the light- 
faced figures in the right-hand column. 

To illustrate : On the 15th of the month, the sales 
were |850, while on the 16th they were but $430. The 
cumulative sales for the same days were, closing the 
night of 15th, |6,950, and on the night of the 16th, 
$7,380. 

The total sales are again divided into credit sales, 
curve No. 1, and cash sales, curve No. 2, the sum of 
which makes total sales, curve No. 3. 

This chart shows at once what amount of sales has 
been made during the month, what the relative amount 
Value ^^ credit and cash sales was, and what the 

of the relative amount of sales on any individual 

^^"* day was as compared with any other day 

of the month. It should be noticed that on every Fri- 
day sales ran much higher than on other days. This 
was due in this instance to Friday bargain day and was 
controlled by special prices and strong advertising 
features. 

Another sharp illustration of the value of a chart 



134 OEGANIZING A FACTORY 

of this kind is shown on the 25th day of the month. On 
this day sales fell off to |225. Inquiry showed that this 
was a very stormy day, with a little better weather on 
the 26th and 27th, normal trade on the 29th, and the 
30th again being inclement weather. This particular 
month is chosen as it illustrates excellent ralues in 
chart making. It will be noticed that there is no rise 
to the curves on Sundays ; the line is dotted only, show- 
ing that no trade was obtained on those days and for 
this reason neither rises nor falls. 

The charts illustrated here are some of the more 
simple forms devised by the writer so that those inter- 
ested might readily understand the method of proced- 
ure used in making them. But charts are made to 
cover every expression of a business as regards costs, 
or production and sales, or to show every variation con- 
tained in a trial balance, or to cover statistical records 
for any number of years of which it may be desired to 
make an exhibit in chart form. 

For railroad and insurance companies, banks, de- 
partment stores and other business concerns, this 
method of presenting results to executives will be found 
so broad in its expression, so concise in pointing out 
conditions that need executive administration, and so 
time-saving and clear in its whole presentation as to 
almost retire the use of the old-fashioned balance sheet 
with its numerical compilations and lack of means of 
comparison. 



OHAPTEE XII 

REDUCTION OF LABOR COSTS 

The one great aim of manufacturers toward the 
reduction of the costs of production has been to con- 
vert labor employed by the day into piece-work labor. 
By so doing they invariably expect that they will not 
only fix their cost of production at some definite point, 
but will also greatly cheapen the cost of production as 
a whole. 

Theoretically this argument is logical, but in 
actual practice I propose to show that without a proper 
means of checking exactly what work is done and the 
prices paid for it, a very large possible profit to a fac- 
tory may be eaten up with no outward indication that 
such is the case. 

The governing feature in a piece-work system is a 
good and proportionate reward to labor for increased 
effort on its part, and a corresponding penalty if this 
effort is not made in the shape of a proportionately 
small wage. We all know that the weakness of the 
piece-work system lies in the fact that invariably the 
time comes — no matter how the price rate may have 
been computed — when the wage earned is too high for 
the labor employed. At that point rate cutting inevit- 
ably begins. 

This in itself introduces a third penalty — a penalty 
of an inverse nature that is somewhat disastrous, as 
it makes piece-work subject to two penalties — one for 
not doing well (in the small amount of wage earned), 
and one for doing too well (when too large a wage is 

135 



136 ORGANIZING A FACTORY 

earned). Rate cutting in the latter case results in a 
whole or partial cessation of further speed effort on the 
part of the employe, and this in turn affects the equip- 
ment, speed and cost proportionately. 

The broadest experiences have shown that the 
whole tendency in the cost of production for labor, 
whether by piece-work or day work, is downward as the 
years go by. There may be times of advance in piece- 
work prices, but they are short lived. The effort of 
every financial interest and of every engineering inter- 
est is centered on lessening costs, while the laborer him- 
self, by virtue of his accumulation of experience in deal- 
ing with an operation or piece of work, increases his 
speed and contributes unconsciously to this same les- 
sening of cost by increasing his output. 

The laborer knows, however, that if he increases 
his output beyond a certain point the inevitable cut will 
How Piece- come. As a result, a body of piece-workers 
Workers Limit in a factory often establish among them- 
Prodttction selves an understanding regarding the 
amount of output that they will produce at a given 
price. This understanding is so thoroughly established 
that in many cases it becomes an unwritten law. 

In factories where speed bosses are employed, or 
where special tests for output have been devised, I have 
seen men purposely dull their drills and other cutting 
tools, so that by the most diligent work they could only 
show a production equal to some standard set among 
themselves, in order to avoid any checking on the part 
of those interested which would have a tendency toward 
a cut in piece rates. It was to overcome this waste that 
the writer conceived of the plan of measuring this 
waste through the channels which are illustrated on the 
accompanying charts. 



C. E. WOODS 



137 




138 



ORGANIZING A FACTORY 



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C. E. WOODS 



139 




140 



ORGANIZING A FAOTOEY 



Comparative Life of Various Units Used in Factories 

STEAM EQUIPMENT 

2808 Hours for a Year 

STEAM. BOILERS 

Tubular Construction ,.... 30 years t - , _.,, , 

Waltr Tube Construction 40 years f Salvage Old Iron 

STEAM ENGINES 

High Speed Automatics - - - 20 years ) 

Mediur.i Speed Automatics - - - 30 years >■ Salvage 5(6 to 10'^ 

Corliss Type - - - W years I 

STEAM PUMPS 

125 to 150 R. P. M. 8 years 1 

75 to 100 R, P. M. • - - 15 years!-, ,, . ,.,, 

50 to 75 R. P. M. 20 years f ^Ivage 5* to 10,6 

30 to 50 R. P. M. - - ■ - 25 years J 

STEAM PIPING 

Ordinary Work 30 yean I , 

High Grade Work "40 years ! Jmk 

PLUMBING 

Ordinary Work 40 years I , , 

High Grade Work ... - 50 years f J>">l' 



1 5% to 20s 
20« to 25S 
25% to 30* 



ELECTRIC EQUIPMENT 

Villages up to 250 

ELECTRICAL MACHINERY 

Very High Speed - ■ * > 8 years. 

Medium Speed . - - - 1 5 yeai^. 

Very Slow Speed 20 and 25 years. 

ELECTRIC WIRING FOR POWER AND LIGHT 

Ordinary Open Weather Proof 15 years 

High Grade Insulation Concealed • • 23 years 

High Grade Insulation in Conduits ....... -40 year. 

16 C. P. ELECTRIC LAMPS 

110 to 125 Volts - ■ - 600>toiits 

220 to 250 Volts • ■ 500 hours 

STORAGE BATTERIES 

Never Worked Above Normal 15 years 

Never Worked up to Normal - 20 years 

Frequently Worked Above Normal 10 years 



Salvage 
Salvage 
Salvage 



Salvage 2}4% to 5« 



Salvage 7i4!5 to \0% 



Salvage 7K* to 10,-8 



GENERAL MACHINERY EQUIPMENT 

2OOO Hours lor a Year 

LATHES. PLANES. DRILL" PRESSES. ETC. 

Very High Speed 10 years / 

Medium Speed 15 years / , 

Very Slow Speed - 20 yean ) 

AUTOMATICS AND TURRETS 

High Speed 8 years 

Medium Speed ^ . 12 years 

Slow Speed 16 years ■ 

LINE AND COUNTER SHAFTING 

High Speed 12 years J 

MSiumTpeed 18 yean> ^ Salvage 20S to 25% 

Slow Speed i .... 24 years ) 

BELTING 

High Speed 12 year* i 

Mediuin Speed 15 years > Salvage Nethiag 

Slow Speed 26 years 1 

BUILDINGS 

Frame, Ortiruitr t? """ (. s I ;i . inaL 

Mill Conilrucdoti '5 years > Salvage 5» to 10* 

Steel, UokiH>wn. Left 10 ' • ■ ■ 75 years I 



Comparative Table showing life of various equipments 



0. E. WOODS Ul 

In the first place, a chart was made on which was 
shown the average wage paid an hour for both day 
work and piece-work for a time period covering an en- 
tire year. This chart is illustrated in Figure XXX. The 
upper line represents the hourly wages of the piece- 
workers, the lower line of the day workers. This chart 
has proved of inestimable value in keeping the record 
of either an advance in wages by day work or an ad- 
vance in earnings by piece-work, for, as before said, the 
time invariably comes when piece-work has to be re- 
adjusted. In the instance illustrated the time was very 
near, as there had been a gradual increase throughout 
the year up to June, while from June until the end of 
September, the increase in piece-work had been prac- 
tically nothing. These figures showed that either a 
maximum speed had been attained by the piece-workers, 
or that they had reached a point (which was the fact) 
where they dare not make higher speed for fear of being 
cut. The aim was to find out the exact facts in the 
case. 

In the Figure XXXI, I make an exhibit regarding 
these facts. This is one of the most interesting charts 
that has ever been plotted in connection with a manufac- 
turing business, and one that is capable of doing more to 
point out a possible reduction in costs, or rather in- 
crease in the value of labor, than any chart that I have 
Learning the ^^^^ made. It is entirely original with 
Eflaciency the writer in so far as its specific use in 

of Labor connection with labor is concerned, and 

has proven wonderfully effective in pointing out the 
exact conditions relative to the subject. 

To indicate the steam engine of a factory for the 
purpose of finding out whether foremen were holding 
their men up to the work or not and obtaining efficient 



142 ORGANIZING A FACTORY 

service from them and the factory equipment, would 
at first sight seem to be a far-fetched proposition. But 
such is the method used in obtaining the facts as shown 
on Chart B. 

On the left side of the chart it is seen that at 6 :45 
in the morning about 520 horsepower was being used. 
There is very little rise on this from that time until 7 
o'clock. It is also seen that this same condition pre- 
vailed at 12 :45 in the afternoon as at 6 :45 in the morn- 
ing. This shows that the friction load of the engine, 
or the load on the engine for transmission devices, such 
as belting, shafting and idle machines, amounted to a 
trifle over fifty per cent of the maximum power required 
when the plant was running with its full load factor. 

Following from 7 o'clock up for the first fifteen 
minutes, it is noticed on the heavy line that but 800 
horsepower was being used, and at 7 :30 but 935 horse- 
power was being used, and that the maximum load, or 
1,000 horsepower was not reached until 8 o'clock. At 
11 o'clock it will be further noticed that the load has 
dropped about 20 horsepower, that at 11:15 it has 
dropped 80 horsepower, that at 11:30 it has dropped 
200 horsepower, that at 11 :45 it has dropped 355 horse- 
power, and that at noon it is back practically to fric- 
tion load. 

Starting again at 1 o'clock, it is noticed that the 
maximum load is not reached until 2 :30, and that the 
load again commences to drop off at 4 o'clock and con- 
tiues to do so down to 5 o'clock, very similar to what it 
did at 11 o'clock. 

From this chart one fact is certain — the amount of 
power required is exactly in proportion to the machines 
in operation, and the machines in operation are exactly 
in proportion to the men at work. Consequently fluctu- 



C. E. WOODS 143 

ations in power can indicate but one possible condition, 
i. e., that the men are not operating their machines at 
such times as the power is lower than normal. 

Investigation into the causes pertaining to this 
particular instance showed in addition to the informa- 
Wanton ^^^^ gathered concerning the total amount 

Waste of of power required that the labor through- 

Power Q^^ ^jjg plant using this power was not 

being kept up to its work. In other words, it was a 
case of building glass offices for the foremen and letting 
the men idle a great deal of the time. For this chart is 
an absolute indication of such a condition. 

If the machines were kept busy up to within five 
to ten minutes of noon the power could not fall off. If 
the men were at work promptly at 7 o'clock and at 1 
o'clock the load factor could not be so slow in reaching 
a maximum. The whole evidence shows a great lack of 
discipline over the men throughout the factory, and a 
wanton waste of time on their part, resulting in an 
equal waste of time for the equipment employed. 

In a factory that employs day work and piece-work 
labor, as in this instance, and in which the piece-work 
labor amounts to over fifty per cent of the total labor, 
the natural inquiry is, why, with so large a percentage 
of piece-workers, is the load so slow in reaching a maxi- 
mum, and why does it fall off so early in both the fore- 
noon and afternoon? 

An analysis of Figure XXX, showing the average 
wage earned an hour, indicates that the piece-workers 
had reached the point in wages earned beyond which 
they dared not go for fear of being cut. Consequently 
the piece-workers were at the times indicated "soldier- 
ing" on their work. This in itself was incentive enough 
for the day workers to do likewise. 



144 ORGANIZING A FACTORY 

Enforcement of discipline in this particular in- 
stance and the keeping of the men up to their work, 
rinding resulted in forcing the power demand out 

the to the point shown by the dotted lines, 

^^*^8 which made an actual gain in time, each 

day, of 74 minutes. This time multiplied by 800, the 
number of men employed, equals 986 working hours, 
which, at an average rate of 20 cents an hour, is |197.20 
a day, or $59,160 a year. These figures represent the 
actual cost to one company of a lack of a system for re- 
cording the work of employes. 

But the results were more far-reaching than this. 
The discovery recorded on this chart not only increased 
the output capacity of the factory by about eleven per 
cent, but it resulted in an adjustment of piece-work 
rates which amounted to nearly a fifteen per cent cut 
in wage cost for piece-work — and still left the piece- 
workers earning as much as ever. But they had to 
work a full day. 

The writer has found this means of investigation 
so far-reaching as a cost-reducing factor as to almost 
revolutionize the internal workings of a plant. But in 
no instance, in conducting these tests, has it ever been 
surmised in the factory, beyond the superintendent him- 
self, exactly what was being done. 

This method of making tests can be made in two 
ways: First, by indicating the steam engine which 
operates the factory; and, second, by using an electric 
motor placed upon a truck to make it portable, and 
running each individual department in the factory with 
this motor for a sufficient number of days or periods to 
find out the facts required. The writer has yet to see 
an instance in which the expense attached to such a 
test has not paid for itself a thousandfold. 



C. E. WOODS ^ 145 

The latter method, of taking one department 
at a time, is the most effective of the two, for the 
Applyine simple reason that it locates to a nicety 

Leakage which foreman and which class of 

*^ workers are most responsible for the 

discrepancies found. 

A still further value to the investigation is the fact 
that it showed the tremendous loss of power due to 
transmission and friction, amounting to 50 per cent of 
the maximum power required, or about 62 per cent of 
the average power required through the day. A rede- 
signing of the entire power transmission system re- 
sulted in a saving of 50 per cent of this loss, or in dol- 
lars and cents a saving of |4,050 a year, making a net 
saving due to the investigation as follows : 

Time saved |59,160 

Reduction in piece-work rates 26,400 

Power saved 4,050 

Total 189,610 

Yet there are manufacturers who do not believe in 
the application of modern ideas to their business. 



GLOSSAET. 



DEFINITIONS OF TERMS USED IN FACTORY COST 
ACCOUNTING 



Accounting: 



Betteeiments : 



Cost: 



Commercial Cost; accounting which concerns 
all expenses attached to the selling of goods. 
This is to the commercial side of the business 
what overhead, is to the manufacturing end. 
Factory Cost; all the accounting done in the 
factory to ascertain the cost on a product from 
raw material to shipment, inclusive, primarily- 
divided into Labor, Material and General Over- 
head. 

Mercantile; accounting pertaining strictly to 
transactions in the purchase and sale of goods 
as merchandise. 

Plant; any extensions or additions to real 
Estate, Buildings, Equipment or Fittings; 
must not include any addition to Material, 
Supplies or Merchandise; is same as improve- 
ments. 

Factory Burden; the English term for Gen- 
eral Overhead expense, and is identical with it. 
(See General Overhead, below.) 
Factory; a term used to designate all of the 
costs of making a product ready for sale. 
Flat; an American expression that signifies 
the exact labor and material cost on a 
product. 

General Overhead; all of the expense in- 
curred in a factory, of any nature whatsoever, 
that is not direct labor and material expense. 
General Expense; the same as General Over- 
head. 

146 



0. E. WOODS 



147 



Cost (contd.) : Labor, Nonproductive; all of the labor em- 
ployed in a factory, whether clerical or other- 
wise, not directly engaged on a product made 
for sale. 

Labor, Productive; all of the labor actually 
engaged in making a product for sale. 
L. cC- M.; the cost of all actual labor and all 
material employed in producing an article for 
sale. 

Material; expense of any material used for 
the making of an article. 



Equipment: 



(NOTE.— In making dies, jigs, special tools, etc., 
for the factory itself, it must always be borne in 
mind that the plant is buying its own product, and 
that labor, material and overhead expense should 
be attached to the regular product.) 

Office; all of the executive, managerial and 
clerical expense and supplies attached to a 
factory as distinguished from work shop items. 
Overhead; a term exactly the same in items 
as General Overhead, but applying to individ- 
ual departments only. 

Plant; expense attached to betterments and 
additions. 

Prime; an English expression for labor and 
material cost. 

To Make and Sell; all of the expense in every 
detail incurred in the manufacture and mar- 
keting of a product. 

Total; the complete cost of any individual 
part, unit or any subdivision of a business it 
is desired to individualize into totals. 

Any form of apparatus or machinery necessary 
to manufacture or construct a product. 



Extensions & As applied to a Factory, same as Improve- 
Additions: ments or Plant Betterments. 

Factobt: a manufacturing plant; the term covers all of 

the buildings in which any individual Indus- 



148 



OEGANIZING A FACTORY 



Factory trial operations are carried on, although the 

(coNTD.): words "kill," "Works" and "Shop" signify the 
same thing in some instances, such as Ma- 
chine Shop, Tool Works, Rolling Mill, etc., but 
the word Factory and Factory Organization 
covers all of these. 

Organization; the arrangement and division 
of a factory business into departments and the 
methods employed for the systematizing of 
same, and for the collection and tabulation of 
costs. 

Receipts; all matter which is received in a 
plant in the shape of material and supplies. 
Has no relation to finances. 

Finished Parts; parts that are finished to a point ready 

for sale or for assembling into complete units 
or repairs, same as Current Machine Parts. 
Product; complete units, as manufactured by 
any factory for sale. 

Flooemen: Any and all men employed as Sweepers, Clean- 

ers, Oilers, Scrubbers, Window Washers, and 
often includes Watchmen and Yardmen, and 
sometimes in small plants Truckers or Shop 
Carriers. 



Fdel: 



Manufacturing; fuel which is used in a direct 
application to product made, as for Forging, 
Brazing, Smithwork, etc. 
Power; fuel used for the generation of steam 
only; divided into Light, Heat and Power. 



Hand 



Tools; (See Tools.) 



Impeovements: Same as Betterments, being often confused 
with Repairs; begins at the exact point where 
Repairs leave off, for a repair is only a replace- 
ment, while an improvement is an extension. 



Intake: 



Same as Factory Receipts. 



C. E. WOODS 



149 







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C. E. WOODS 



151 



Job Tickets; those tickets used by the workmen 

for colleicting the time or material, or both, of 
each individual worker, on any specified shop 
order. 

Machine: Usually, some product manufactured; should 

not be! confused with Machine Tools, which are 
a part of Equipment. 

Maintenance: The expense incidental to the keeping of a 
thing or condition up to a certain standard of 
usefulness. 

Material: Any substance or matter to be made up as a 

product either for sale or improvement; must 
not be confused with Supplies. (Sete Supplies.) 

Mebchandise: Those commodities which are neither material 
nor supplies, being composed of such articles 
as are bought by a factory to be sold again 
without having any labor added to them. 

Number: Belt; a number usually applied only to Main 

Driving belt. 

Blue Print; the serial number of a blue print 
and having no relation to the drawing number. 
Building; a number used in the classification 
and identification of a number of buildings 
belonging to one plant. 

Catalogue; one of a series used to classify 
completed units or a number of parts of units 
as manufactured by a factory for sale. 
Check; the number on the face of the check 
used by workmen for identification. 
Combination; union of two or more numbers 
or a letter and number for the classification of 
parts. 

Department; one of a series of numbers used 
for the classification of the departmental 
divisions. 

Die; a number for the classification of all dies. 
Drawing; a number used for the classification 



152 



ORGANIZING A FACTORY 



NuMBEB of all drawings, and may either be in combina- 

(CONTD.) : tion or single. 

Flask; a number used for the classification of 
all flasks in a foundry. 

Parts; a number used for classification of the 
various parts required to make a complete unit. 
Pattern; a number used for the classification 
of all patterns. 

Power Equipment; a number used for the 
classification of all units whatsoever for the 
development, transmission and application of 
power required. 

Purchasing; a number used for the identifica- 
tion of all orders under this heading. 
Record; a number used both for identification 
and classification of all records. 
Requisition; a number used for the identifica- 
tion of all requirements under this heading. 
Serial; a number used for the recording of all 
units or parts of units that are sold. 
Shafts; a number used for the classification 
and location usually of main line shafts only. 
Shipping; a number used for the identification 
of all shipping orders. 

Tickets; a number used for the identification 
of all tickets required for the collection of 
costs. 



Mill: (See Factory.) 

Oedeb: Chief Engineer; an order issued directly by 

the Chief Engineer to his subordinates. 
Factory; usually, a production order, but 
should be obsolete and production order used 
instead. (See Production Order.) 
Foreman; an order issuing from the Foreman 
to his subordinates. 

Mechanical Engineer; an order issuing from 
the Mechanical Engineer to his subordinates. 
Mill; (See Production Order.) 
Production; an order from the commercial 



C. E. WOODS 



153 



Obdkb(contd.): end of a business to the manufacturing end, 
for the latter to produce or manufacture goods 
in accordance. Is by some carried directly 
into the factory as a Production Order, but by 
others is treated as a Sub-Production Order, 
owing to the fact that the Works Manager or 
Superintendent may merge two or more Pro- 
duction Orders together in issuing same to the 
factory, especially in parts required. 
Production, Shop; (See Production Order.) 
Purchasing; any order for the purchase of 
material, supplies or machinery. 
Sales; any order received from those who pur- 
chase the product manufactured. 
Stock; any order issued to a factory to make 
up a product that has not as yet been sold, in 
anticipation of some future market. 
Shop Transportation; any order having to do 
with the transportation of material, parts or 
product made in a factory in itself. 
Shipping Directions; an order directing the 
routing of a shipment by Express or Freight. 
Shipping; direct instructions covering a 
specific amount of product to be shipped. 

Oittput: Complete Product; that which is a complete 

unit manufactured by any plant. 
Cafe; all sales or receipts realized from the 
operation of cafe direct by the factory itself or 
by lease. 

Contract; specific or special work taken in to 
be manufactured that is not a regular product. 
Merchandise; the quantity of any goods or 
pieces bought and sold without having any 
material or labor added by the factory. 
Parts and Repairs; any one or number of 
parts as manufactured by a plant for its com- 
pleted units and sold exclusively by Parts and 
Repair Department. 

Plant Sales; any portion of a plant or its 
equipment that may be sold. 



154 



ORGANIZING A FACTORY 



Output Scrap; all income realized from the sale of 

(coNTD,): scrap of any kind. 

Product: Anything that is manufactured for sale. 

Pabts: Current Machine; all parts in a factory which 

are completely finished as far as labor and 
material are concerned, as individual parts, 
■whether in the Stock Room, Factory, Ware- 
house packages or otherwise, except such parts 
as are set aside into what is commonly termed 
as Parts Repair Department. 
Repair; all parts carried in stock for either 
local repairs in factory on the product manu- 
factured, or for shipment to other points for 
the same purpose. Specifically, stock on hand 
belonging to the Parts Repair Department of 
the business. 

Work in Progress; those items which have 
ceased to be raw material by having had one 
or more operations performed upon them that 
has individualized them sufficiently to give 
them the dignity of a name, but are not as yet 
completed parts. These must not include 
castings bought outside, but if made by the 
factory itself, then they are a department prod- 
uct and become Work in Progress, as does 
any other item converted to some definite form 
by a factory from Gross or Prime Substances. 

Power: Any apparatus used for the generation or 

application of power in a factory. The word 
"Transmission" to be included with Electrical 
Equipment. 

Repaibs: Plant; all repairs incident to the up-keep 

or maintenance of a Plant. Must not be con- 
founded with improvements. 
Product; any labor or material furnished to 
repair the product made. Belongs to Parts 
and Repair account. 



C. E. WOODS 



156 



Sales: Cafe; all Income derived from operating a 

Cafe in connection with a plant. 
Contract; sales, as in certain lines of business, 
where contract is not only for product manu- 
factured by contractor, but for product not 
made or controlled by him; as for instance, 
an engine builder may contract to furnish 
dynamos and boiler to go with his engine. 
Merchandise; all goods bought and sold with- 
out having either labor or material added to 
them, except for handling. 
Outside Work; sales made; by special contract 
covered by some specific form of construction 
differing from regular product. 
Parts and Repairs; both labor and material 
for repair work. 

Plant; anything sold from real estate, build- 
ing, fittings or equipment. 

Shop: (See Factory.) 

Carrying; any form of convenient product 
parts, material or supplies in a factory, 
whether by crane, truck, hand or barrow. 

SMAiL Tools: (See Tools.) 

Stock: Raw Material; any material as it is received 

prior to processing by the factory. 
Parts and Repairs; any completed parts that 
are carried directly in stock for the purpose 
of supplying repair parts. 
Finished Product; all product finished into 
complete units that is for sale. 

Stores: Assembly; (1) in some instances the same as 

finished stores; (2) in othdr instances, such 
stores as are separated into an assembly room 
and classified as assembly parts. 
Finished; same as stock finished product, and 
includes stock parts and repairs. 
Rough; same as raw material; all that ma- 
terial which goes into a factory from which 



156 



ORGANIZING A FACTORY 



Stobes finished stores are produced prior to its hav- 

(coNTD.) : ing any work done on it. May include, how- 
ever, highly finished items, such as wire, 
sheet metal, screws or any completed parts 
bought outside of the factory, to which no fur- 
ther labor and material is added; also, cast- 
ings that have not as yet been processed 
in any way, if bought outside. 
Semi-Finished; those stores usually termed 
Work in Progress, in which rough material 
has become individualized, but is not yet a 
completed part or parts. 
Stock; (See Stock.) 

Supplies: Such items as are consumed in the plant itself, 

as Oil, Fuel, Waste, etc.; must not be confused 
with matefrial. 

Tools: Hand; all such tools as die and tap sets, files, 

hammers, wrenches, etc. 

Machine; all general equipment of the ma- 
chine tools or machines used in a factory out- 
side of the power equipment. 
Small; jigs, and dies, drills, reamers, arbors, 
cutters, and tools of like character. 
Workingmen's; all tools that are the individ- 
ual property of the workingman. 

Up-Keep: Same as Maintenance; must not be confounded 

with Betterments, Improvements or Deprecia- 
tion, as is often done. Comprehends strictly 
the necessary expense of keeping a thing in 
condition, operative and useful; broadly speak- 
ing, includes all repairs to buildings and equip- 
ment. 



Wobks: 



(See Factory.) 



